Domestic Reverse Charge for the Building and Construction Industry Delayed
The introduction of the domestic reverse charge for construction services represents a fundamental shift in the approach to collecting VAT in the building & construction sector. It was originally due to take effect from 1 October 2019 but was delayed until October 2020. Now, due to the impact Coronavirus has had on the sector, HMRC have decided to delay it further until 1 March 2021.
Dated: 08 June 2020 Author: Terri Bruce, Director of Indirect Tax for SMEs and Not for Profits
What does the reverse charge mean and who does it apply to?
The reverse charge means the customer will be liable to account for the VAT on the construction services received on their VAT returns instead of paying the supplier. This means that VAT will effectively be removed from the supply chain which may create cash flow issues for those businesses which have been using the VAT collected from customers like a short term “loan” before it becomes payable to HMRC.
It will affect anyone who supplies or receives specified services that are reported under the Construction Industry Scheme (CIS), eg when supplied to other construction companies or certain intermediaries in the supply chain.
To be excluded from the reverse charge, businesses which are end users or intermediary suppliers must inform their sub-contractors of this.
What impact will this delay have?
Any businesses which have already made changes to the way they work to implement the reverse recharge will have to review and delay these changes.
Looking ahead, businesses which have been used to relying on VAT collected from customers as working capital should consider what changes they need to make before March 2021.
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