The VAT reverse charge is to be shelved until at least 1st October 2020 confirms HMRC; this follows a number of concerns raised by accountancy bodies as well as industry representatives saying that some businesses within the construction industry was not ready to implement the introduction of the VAT reverse charge. With the plans ‘put on hold’, this gives businesses more time to prepare, and also avoids the changes coinciding with Brexit.
HMRC says this approach should be seen as an “anti-fraud” measure, preventing fraudsters from stealing VAT owed to HMRC. Many of the 150,000 businesses affected are yet to update their accounting systems to abide by the new VAT regime. Meanwhile businesses within the construction sector will be affected by reduced cashflow due to an end to VAT payments from customers where the reverse charge is applicable.
A recent survey conducted by the Federation of Master Builders indicates that 69% per cent of construction SMEs surveyed have not even heard of the new reverse charge. And 67% of small construction firms that were aware of the proposals wasn’t prepared or understood the changes that was too due to come into effect on 1st October 2019.
HMRC currently “remains committed to the introduction of the reverse charge and has already increased compliance resources”. HMRC will “work closely with the sector to raise awareness” and help “all businesses” to be ready “for the new implementation date”. HMRC says it remain committed to work to raise awareness of the change. Its statement said those who have changed their invoices in preparation for the new rules would be given some leeway.
I’m pleased that HMRC has made this sensible and pragmatic decision to temporarily shelve the reverse charge VAT. until a time when it will have less of a negative impact on the tens of thousands of construction companies across the UK.
The Chartered Institute of Taxation (CIoT) has also welcomed the government’s clarity, which should ease fears among suppliers and customers over VAT disputes. If the Government had pressed ahead with its plans to start [for the VAT reverse charge regime] this October we envisaged significant confusion amongst businesses, leading to disputes between suppliers and customers as to whether or not VAT should be charged.
A start date of October 2020 is more sensible. This should allow time for a dedicated information campaign to be operated by HMRC, with the assistance of industry and professional bodies.”