The implementation of domestic reverse charge value added tax for construction services was originally planned to begin in October 2019 but after concerted industry lobbying, it was put back a year, to October 2020, just weeks before it was meant to begin.
Given the current health crisis and its impact on the economy, a raft of trade associations have written to chancellor Rishi Sunak ask for another year’s extension, citing cashflow concerns.
They write: “Construction companies are dedicating all their efforts to responding to the coronavirus. Until the lockdown in March the construction industry had been actively working with officials in your department and HMRC to prepare the industry for the introduction of reverse charge VAT. This is now very difficult to continue. Companies no longer have the capacity to prepare for this change. Furthermore, the virus has significantly impacted on activity and therefore cashflow in the sector. The concern that reverse charge VAT will reduce cashflow in the supply chain risks the survival of many companies but especially SMEs.”
The letter was instigated by the Federation of Mast Builders and signed by Build UK, the Builders Merchants Federation, the National Federation of Builders and the Construction Products Association, among others. It is even signed by the Construction Leadership Council, which as a government body co-chair by a minister, is not set up to engage in this sort of lobbying activity.
A cross-industry survey in February 2020 received more than 1,000 responses and found that 39% still did not know about the impending introduction of reverse charge VAT, where customers will pay VAT directly to HM Revenue & Customs instead of to the service supplier. And 46% of survey respondents said that their accountancy software was not ready for the change.