DELAYED – Domestic Reverse Charge VAT for Construction Services!

10th September 2019

Brexit strikes again!  It appears that dreaded “B” word is not only good for grabbing headlines but also for causing H M Revenue & Customs a fair number of headaches.  Brexit has been blamed by the Revenue for everything from extended hold times on their phone lines to the delay in implementing their Making Tax Digital framework for Income Tax and Corporation Tax and now it would seem it has claimed its latest victim.

 

Less than a month before it was due to be brought in on 1 October 2019, HMRC have chosen to delay the implementation of the new Domestic Reverse Charge (DRC) for the construction industry by a full 12 months to 1 October 2020.  Many would say this was a wise move indeed as software houses had struggled to implement the relevant changes to their products to ensure they were compliant in time, with detailed guidance on the measure having only been released in June 2019.

 

The DRC represented a significant shake-up of the VAT system in the construction industry wherein VAT-registered subcontractors could have found themselves issuing their, previously standard-rated, invoices with no VAT, even to the point where they may have become subject to regular VAT repayments.  Concerns had arisen regarding the initial hit on cashflow that such sub-contractors would suffer in receiving 20% less up-front for their work, however these businesses now have another year to plan for this.

 

The delay therefore may come as a big relief for some, although it will have its frustrations for others.  H M Revenue & Customs readily acknowledges that businesses may already have put into place the necessary changes to accounting systems, such as modifying their invoice templates, and have suggested that they will take into account the late change of implementation date when dealing with “genuine errors” caused by this.  Also, for those traders who may have already decided to switch to monthly VAT Returns to make the most of regular repayments (as a result of a drastic reduction in their output tax), they have advised that the switch be made back to quarterly Returns via the HMRC website.



 
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