Delay to the implementation of the VAT reverse charge for construction services

On 6 September 2019, HMRC announced that the reverse charge for construction services will not be implemented until 1 October 2020.

The measure was due to be implemented on 1 October 2019 but construction industry representatives had expressed concern that businesses in the sector are simply not ready.  HMRC also point out that the delay will avoid the implementation coinciding with Brexit.

The VAT reverse charge for construction services is an anti-fraud measure, requiring the customer of specified construction services to account for the output VAT due to HMRC.  Specified construction services are those services that fall within the Construction Industry Scheme (CIS) but only if the customer then provides the service as part of an onward chain. The impact of the measure will be two-fold: suppliers will see a negative cash flow impact due to them no longer receiving VAT from their customer and both suppliers and customers will have to deal with increased administration.

HMRC’s brief states that they remain committed to introducing the measure in 2020 and, in the intervening year, they will work closely with the sector to provide guidance and support.

HMRC acknowledges that some businesses have already changed their invoicing systems ready for the measure and they may find it difficult to change their systems back again! If genuine errors arise due to the postponement, HMRC will take this into account.

Some suppliers may have already switched to monthly returns in order to mitigate the cash flow disadvantage posed by the measure. The brief reminds those businesses that they are able to switch back to quarterly returns using the appropriate stagger option on the HMRC website.

HMRC’s briefing can be viewed here.