HMRC delay the launch of the new reverse charge for construction services
Following the recent announcement regarding the reverse charge VAT delay, we provide a quick update on what it means for those in the construction insustry and what you need to do to prepare.
What was the plan originally?
The reverse charge scheme, which was more commonly seen on supplies from the EU as well as mobile phone and computer chips, was to be rolled out to include supplies of construction services. In effect, this would mean that the customer would be responsible for accounting for the VAT due, rather than the supplier. One of the main consequences of this was that a main contractor who would usually have received VAT from subcontractors will now in effect receive the ‘net’ amount in cash.
So what has happened?
The legislation, originally down to be put into force on 1 October 2019, was delayed for 12 months, and will now not come into force until 1 October 2020.
Are they likely to delay any further?
There isn’t any suggestion from the briefing note supplied by HMRC that this would be the case. The delay seems to be down to a combination of a lack of perceived readiness, and that there may be some other changes to the European trading relationships which may compound the burden on the industry. There remains a possibility that the trading position could become clearer in the coming weeks, but there does not appear to be any likelihood of changes being made as a result.
Is there anything we need to do in the meantime?
The general advice remains unchanged from the original implementation, with the chief commercial consideration being given to how cashflows are impacted by the change. Businesses can transition to monthly VAT returns to assist with the size (if not the frequency) of the requirement, for example.
Firms should also continue to take steps with changes required to the physical invoices, and make sure that the trading relationships are clear – to avoid any complications at the new date of transition.