Delay in VAT Domestic Reverse Charge
Sep 12, 2019
In our July newsletter we included an article about the ‘domestic reverse charge’ for building services, which HMRC was planning to introduce from 1 October 2019. In a short briefing published last week on gov.uk, HMRC has now announced that there will be a 12 month delay to this new rule.
Why the delay?
The introduction of the VAT domestic reverse charge entails the construction industry using an entirely new method of accounting for VAT. It’s a complex new system which will require significant adjustments to businesses’ invoicing processes, and the originally short timetable planned for its introduction was widely criticised by experts in the building industry, including the Federation of Master Builders. They claimed that many affected parties were still oblivious of the new rule, let alone how to fully implement it.
The other serious concern was the effect of the VAT DRC kicking in at the same time as the UK’s potential exit from the EU. To the relief of many, it seems that the government has listened to industry representatives, and agreed a delay in the implementation of the new legislation until 1 October 2020.
Delayed but not forgotten
This delay is designed to give the construction industry more time to prepare for the changes. HMRC has stated that it remains committed to introducing the charge, and that it will work closely with the sector to provide the support and advice required to ensure that all businesses are ready by the new implementation date.
In the meantime there are some businesses which have already made the necessary amends to their invoices, in order to meet the requirements of the new VAT DRC. For those businesses, there’s not enough time to undo the change, and so HMRC will take into account any resulting errors.
Brian Berry, Chief Executive of the Federation of Master Builders, has hailed the decision as “sensible and pragmatic”. And despite such last minute back-tracking by HMRC, the delay is being hailed as a ‘victory for common sense’, which will help avoid ‘construction chaos’. The vital issue now, according to Berry, is that “the government and industry work together to deliver a sector-wide communication campaign, […] [including] workshops aimed at construction employers, […] to explain what is happening and why.”
If you have any queries about the VAT DRC and how it may affect your business next year, please contact us and we’ll be happy to help.