Delay in implementation of domestic reverse charge VAT for construction services

Newsletter issue - October 2019.

HMRC have published Brief 10 (2019), which explains that the introduction of the domestic reverse charge for construction services will be delayed for a period of 12 months until 1 October 2020.

A domestic reverse charge is an anti-fraud provision, which means that the UK customer who receives supplies of construction services must account for the VAT due on these supplies on their VAT return, rather than the UK supplier.

To allow for potential cash-flow and administrative impacts the change could have on businesses, there has been a long lead-in time ahead of the measure coming into force. The change was due to take effect from 1 October 2019. However, industry representatives raised concerns that some businesses in the construction sector would not be ready to implement the change from that date.

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 1 October 2020. This will also avoid the changes coinciding with Brexit.

In the intervening year, HMRC will focus additional resource on identifying and tackling existing perpetrators of the fraud. They 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.

HRMC recognise that some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC will take into account the fact that the implementation date has changed.

Some businesses may have opted for monthly VAT returns ahead of the 1 October 2019 implementation date which they can reverse by using the appropriate stagger option on the HMRC website.