The impact of coronavirus on the construction sector has prompted the government to delay the introduction of the VAT domestic reverse charge until 1 March 2021.
The measure, which is intended to reduce VAT fraud, means that UK customers who receive supplies of construction services must account for the VAT on these supplies on their VAT returns, rather than the supplier doing so. It prevents suppliers from charging VAT that they then do not pay to HMRC.
This is the second delay to the charge. It was originally due to start on 1 October 2019 but it was deferred for 12 months because of concerns about lack of preparation and the impact on businesses.
The reverse charge will affect specified building and construction services supplied at the VAT standard and reduced rates that are reported under the Construction Industry Scheme (CIS). It will not apply to zero-rated services.
In a change to the legislation, HMRC has said that businesses will only be excluded from the reverse charge as end users or intermediary suppliers if they have informed their subcontractors of this in writing. This will bring certainty for subcontractors about the correct treatment for their supplies.
HMRC says it will work closely with the construction sector to provide guidance and support to make sure all businesses will be ready for the new implementation date