VAT changes for Construction Industry – now delayed until 1 October 2020

construction workers
construction workers

Following our recent news regarding VAT changes for the construction industry, specifically the VAT Construction Scheme Domestic Reverse Charge, HMRC have now announced it will be delayed for 12 months.

The new date for the VAT reverse charge will be 1st October 2020. From this date, VAT-registered firms who are reporting under the Construction Industry Scheme (CIS) will see a major change to the way VAT is collected. The customer receiving the service will now have to pay the VAT due to HMRC instead of paying the supplier.

HMRC have provided a brief that explains that the introduction of the domestic reverse charge for construction services.

The charge has been set into place to help remove the scope for fraudsters to steal the VAT due to HMRC and follows similar measures introduced in response to criminal threats for telecommunication services and renewable energy certificates. There has been a long lead-in time ahead of the anti-fraud measure coming into force.

The long lead-in time, which was first introduced by the government in the Autumn Budget 2019, was to allow for potential cash-flow and administrative impacts the change could have on businesses.

Businesses need to adapt their accounting systems for dealing with the VAT changes and there will be a negative impact on the cash-flows for many affected businesses, as they will no longer get VAT payments from customers for services where the reverse charge applies. Our team of chartered accountants at A&C can offer this service to all our existing and new clients.

 Explanation of the change

HMRC have provided an explanation of the change, explaining that some businesses in the construction sector are not ready to implement the VAT changes according to Industry representatives.

Therefore, HMRC have confirmed that they are prepared to help these businesses by delaying the change for 12 months. They have also highlighted that this will avoid the changes coinciding with Brexit.

It is important to note that HMRC remain committed to the introduction of the reverse charge and has already increased compliance resource. From the new proposed date, HMRC will focus additional resource on identifying and tackling existing perpetrators of the fraud. It will also work closely with the sector to raise awareness and provide additional guidance and support to make sure all businesses will be ready for the new implementation date.

What happens if your business has already made the necessary changes?

HMRC are aware that there are businesses who have already changed their invoices to coincide with the new changes and will not have to change them back. Thankfully HMRC will take this into account.

For those businesses who have opted for monthly VAT returns ahead of the 1 October 2019 implementation date can reverse this by using the appropriate stagger option on the HMRC website.

Need more information?

HMRC will update the reverse charge guidance to reflect the change in the implementation date.

For further information about this announcement contact: indirecttax.vatsncfteam@hmrc.gov.uk.

Our dedicated Construction sector team have already implemented these changes for our clients. Those clients can rest assured that our team have already spent the morning working hard to put the changes back to how they were prior to the new rules. If any of our clients do have these concerns, please contact us on 0161 962 1855.

A&C Chartered Accountants offer a wide range of services which are unique to your business needs. Our team of specialist construction industry accountants have a wealth of experience in the most effective tax-efficient solutions for your business to optimise growth. If you want to learn more about how the team can help or simply want advice from a trusted accountant do hesitate to contact us.

For more information please do hesitate to contact us on 0161 962 1855. Alternatively, you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

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