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Wed July 08 2020

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Treasury agrees to delay reverse charge VAT again

5 Jun HM Treasury has succumbed to construction industry lobbying and agreed to a further delay to the introduction of reverse charge VAT.

The introduction of the domestic reverse charge for construction services was originally meant to be introduced in Octoerb 2019 but was put back to October 2020 after the construction industry persuaded the government that, amid Brexit uncertainty, it was not ready for the cashflow hit that the reform brings with it.

In the wake of the Covid-19 crisis, construction industry concerns about the imminent change were heightened again and the Construction Leadership Council and several trade associations pushed for another year’s delay.

The Treasury has not conceded, at least partially, putting it back five months to 1st March 2021.

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There will also be an amendment to the original legislation, which was laid in April 2019, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers.

A domestic reverse charge means the UK customer who gets supplies of construction services must account for the VAT due on these supplies on their VAT return, rather than the UK supplier. The motive for the Treasury is to remove the scope for fraudsters to steal the VAT due to HMRC.

A technical consultation on the draft legislation and its impact took place in summer 2018 and the final legislation and guidance were published in November 2018. However, awareness of the changes remains low across the construction sector. 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.

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