It has been announced there will be a five-month delay to the implementation of the VAT domestic reverse charge for construction services, meaning the new rules will now come in to force on 1 March 2021.
HMRC have stated the reason for this delay is due to the impact the coronavirus pandemic has had on the building and construction sector.
The reverse charge was originally planned to come into force on 1 October 2019 but was previously delayed for 12 months in response to industry concerns that some businesses were not ready to implement the changes required.
The additional five-month delay allows businesses to adapt their accounting systems and to consider whether the changes will have a negative impact on their cash-flow, as under the scheme many businesses will no longer receive VAT payments from their customers.
HMRC remain committed however to the introduction of the reverse charge. They have stated they have put in place a robust compliance strategy for tackling fraud in the construction sector during the period where traditional accounting still applies.
The delay in the reverse charge is to be welcomed as many businesses have to consider their company’s future along with other VAT measures. These include the deferral scheme introduced by the Chancellor at the start of the coronavirus pandemic.
There have been rumours in the national newspapers that there could be an emergency summer budget held in July this year, where the Chancellor will announce other new support measures to help set the UK economy on course for a post-coronavirus recovery.
Some have even suggested that these could include a reduction in the VAT rate (a strategy that Alistair Darling employed in 2008 following the banking crisis). A VAT reduction may help stimulate the economy but would be difficult to introduce for construction businesses if it was brought in alongside the reverse charge.
Julian Borley, VAT Director at Milsted Langdon said “For the construction sector, an additional five-month delay is a welcome relief. COVID-19 has impacted the industry with projects facing supply chain issues, site closures and new measures in place to ensure the health and safety of the workforce.
“This delay, along with VAT deferrals and even a potential reduction of VAT will allow businesses to focus on maintaining a healthier cash flow. In addition, businesses now have the time to prepare for the implementation of the reverse charge, to ensure that there is no negative impact from these measures on their business.
“If you are concerned about what these change may mean for your business, please email VAT@milstedlangdon.co.uk.”