Major changes to the way VAT is collected within the UK construction sector have been delayed until next year.
The domestic reverse charge, also known as the reverse charge, will require the customer receiving the service to pay the VAT to HMRC, rather than the supplier.
The changes will now come into effect on October 1, 2020, and not next month as planned in order to give businesses ‘more time to prepare’.
“Industry representatives have raised concerns that some businesses in the construction sector are not ready to implement the VAT domestic reverse charge for building and construction on October 1, 2019,” said a spokesperson at HMRC.
“To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until October 1, 2020.
“This will also avoid the changes coinciding with Brexit.”
Business must be prepared for the changes, with HMRC saying it ‘remains committed to the introduction of the reverse charge and has already ‘increased compliance resource’.
The new rules apply to VAT registered businesses which supply certain construction services to other VAT registered businesses for onward sale.
The reverse charge does not apply to business/businesses who do not make onward supplies of the services, HMRC class this group as ‘end users’.
HMRC is warning businesses to be prepared for the changes by:
- checking whether the reverse charge affects either your sales, purchases or both
- making sure your accounting systems and software are updated to deal with the reverse charge
- considering whether the change will have an impact on your cash flow
- making sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate
- Contractors will need to review all contracts with sub-contractors, to see if the reverse charge applies, and notify suppliers if it will
- Sub-contractors will need to contact customers to see if the reverse charge will apply, and whether they are an end user or intermediary supplier.
HRMC has provided a flow chart to show when to apply normal VAT rules, or the new reverse charge, view it here.
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