Domestic reverse charge postponed to October 2020

The introduction of the domestic reverse charge for construction services has been delayed for 12 months until 1 October 2020.

HMRC has made the change after industry representatives raised concerns that some businesses in the construction sector are not ready to implement the charge on 1 October 2019. The delay will also avoid the changes coinciding with the UK’s departure from the EU.

The department said it remains committed to the introduction of the reverse charge and has already increased compliance resources. In the intervening year, it 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.

Acknowledging 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, HMRC stated that ‘where genuine errors have occurred’, it will take into account the fact that the implementation date has changed. 

Further, businesses that may 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.

Describing the announcement as ‘good news’, Linda Skilbeck, vice-chair of the Chartered Institute of Taxation’s indirect taxes sub-committee, said: ‘If the government had pressed ahead with a start this October we envisaged significant confusion among businesses, leading to disputes between suppliers and customers as to whether or not VAT should be charged. It would have led to an additional influx of calls to HMRC’s phone lines, while HMRC and its call centres were already busy dealing with the implementation of Making Tax Digital, as well as the consequences of Brexit.’

She said the October 2020 start date would allow time for a dedicated information campaign to be operated by HMRC, with the assistance of industry and professional bodies, as well as improvements to the content and accessibility of guidance on GOV.UK.

Indirect tax partner at MHA MacIntyre Hudson Alison Horner said: ‘For the whole industry, the delay will be a relief. Over the past six to 12 months businesses have been spending time and money to ensure they are ready for the changes. There was a serious concern that many sub-contractors would go out of business as a result of the new rules.

However, she added the postponement would be frustrating and costly for those who invested the time and money to be ready – although they would be prepared when the charge is introduced next year. She said: ‘The worst affected will be sub-contractors who moved to monthly returns to get ahead of the changes. They will need to reverse their VAT return accounting dates as soon as possible, which HMRC has said it will facilitate. By remaining on monthly returns, sub-contractors may find they have cash flow problems in funding an unexpected VAT payment to HMRC.’