Domestic reverse charge for the construction industry further delayed until March 2021
The announcement regarding the delay to the introduction of this new legislation is largely due to the impact of the coronavirus pandemic on the construction sector.
Once implemented, the Domestic Reverse Charge legislation changes will deliver a complete overhaul to the way VAT is payable on building and construction invoices in a bid to reduce fraud in the sector.
Under the domestic reverse charge, the customer receiving the service will have to pay the VAT owed straight to HMRC instead of paying the supplier if they report under the Construction Industry Scheme (CIS).
The change has been deferred once before after originally being scheduled to come into effect from 1 October 2019 but was then delayed after concerns were highlighted about the lack of preparation and the impact on businesses.
There will also be an amendment to the original legislation laid out in April 2019, making it a requirement for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers.
HMRC intends that the additional amendment will help to ensure both parties are clear whether the supply is excluded from the reverse charge. It reflects recommended advice published in HMRC guidance and brings certainty for sub-contractors as to the correct treatment for their supplies.
If followed, it will remove a concern that HMRC may seek to challenge the reverse charge treatment where a business that qualified as an end user or intermediary supplier had not given any notification of their status.
From now, until the change comes in to play in 2021, HMRC states that it will continue to focus additional resource on identifying and tackling existing perpetrators of fraud in the construction supply chain, working closely with the sector to raise awareness and provide additional guidance and support to ensure that all businesses will be ready for the new implementation date.
There’s no doubting that the Coronavirus Pandemic is having an impact on construction industry's cash flow meaning that it’s essential that the government delays its introduction of reverse charge VAT by at least one year to allow for some much needed recovery time for the sector.
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