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Further delay in VAT reverse charge for construction services amid COVID-19

In September 2019, due to lobbying from the construction industry, the Government announced a delay to the new reverse VAT regime for construction…

Pre-COVID-19 position

In September 2019, due to lobbying from the construction industry, the Government announced a delay to the new reverse VAT regime for construction services.

The consensus in the sector was that the change was controversial and there were real concerns about the impact on cash flow and administrative procedures that would need to be put in place, not to mention the uncertainties around Brexit. Listening to the feedback, the Government said that the new regime would come into force in October 2020.

We published an article in 2019 addressing the delay and commenting on the details and the impact of the new regime. The article can be found below and is a useful reminder as to who will be impacted by the new regime and what it entails.

HMRC say relax - Construction service reverse VAT charge delayed

Impact of COVID-19

As the COVID-19 pandemic continues into the summer of 2020, the Government has announced a further five month delay to implementation. It will be deferred until 1 March 2021. This is to help businesses overcome the impact of COVID-19 and to ensure all measures are in place for implementation, including adapting their accounting systems and addressing the impact on cash flow.

The way forward

In the build up to implementation, which the Government is calling “the intervening period”, HMRC has vowed to remain committed to considering other options and additional resource in combatting VAT fraud. The Government has also asserted that they intend to work closely with the construction sector in order to ensure a smooth transition towards March 2021. One specific point that the Government has confirmed is that end users and intermediary suppliers are required to notify their sub-contractors of their end-user or intermediary supplier status, in writing, so that all parties are aware whether the supply is excluded from the reverse charge. It is clear that the Government wants to remove any ambiguity in an attempt to avoid non-compliance.

We emphasise our guidance in previous articles and recommend that:

  • You seek VAT advice and decide whether the reverse charge will apply to you from the start of a project if it will straddle the March 2021 change.
  • If the reverse charge does apply, appropriate steps need to be taken in advance of March to assess the impact and to incorporate new VAT accounting and invoicing procedures.
  • If you are an end user or intermediary supplier, procedures must be put in place to ensure written notices are sent to sub-contractors confirming when the supply is excluded from the reverse charge.

The construction industry has been getting ready for this disruptive time and has had the opportunity to relax but, despite the delays and pressure from the sector, the Government appears committed to implementing the new regime (and has taken the guidance from Tom Petty and won’t be backing down).