VAT reverse charge in construction – delayed
By Philip McNeill, Head of Taxation (Tax Practice and Owner Managed Business Taxes)
9 September 2019
In a dramatic reversal, HMRC announced on Friday 6 September 2019 that the introduction of VAT reverse charge in construction would be delayed by 12 months to 1 October 2020.
This follows calls for a six-month delay, due to low levels of awareness reported in the construction sector.
What is VAT reverse charge?
VAT reverse charge for VAT is an anti-fraud measure. It makes the customer liable to account for VAT on specified goods and services. It is formally referred to as ‘domestic reverse VAT charge for building and construction services’ in order to distinguish it from other VAT reverse charges applying to business to business supplies made to businesses outside the UK.
Domestic reverse charge already applies to mobile phones, computer chips, wholesale gas and electricity and services in connection with renewable energy certificates, wholesale telecommunication and emission allowances. It was to have been extended, with certain modifications, to supplies of construction from 1 October 2019.
Why has the delay happened?
HMRC attributes the delay to need to avoid the change coinciding with Brexit and to give the industry longer to prepare.
What if a business has changed its systems already?
HMRC recognises that some businesses may have already changed their invoicing systems to apply reverse charge from 1 October 2019 and may be unable to reverse this change immediately. This may result in invoicing ‘errors’ and HMRC will adopt a light-touch approach ‘where genuine errors have occurred {due to} the fact that the implementation date has changed’.
Further guidance
- Revenue and Customs Brief 10 (2019) sets out the reasons for the delay and HMRC’s approach to errors.
- Domestic reverse VAT charge for building and construction services – the main guidance now reflects the revised date and this should be highlighted to clients.
- Previous guidance issued November 2018