Implementation of VAT Reverse Charge mechanism for UK construction services delayed until 1 October 2020

Implementation of the VAT Reverse Charge mechanism for UK construction services has been delayed until 1 October 2020.

What is this?

A planned change to VAT procedures designed to tackle fraudulent activity in the construction industry.

What will it involve?

A VAT registered business supplying relevant construction services in the UK to another VAT registered business will no longer charge and collect the VAT element of their invoice from the contractor.  Neither will a contractor receiving relevant construction services be charged VAT by a sub-contractor who is VAT registered.  Instead the VAT is dealt with through a Reverse Charge mechanism.

When was this due to happen?

The new regulations were due to be implemented on 1 October 2019.

What has just been announced?

On 6 September HMRC announced that the implementation of these measures will be delayed by 12 months, and so will not now come into force until 1 October 2020.

Why the last minute change in plan? 

In a word – Brexit! Per HMRC’s own statement ‘To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 12 months until 1 October 2020. This will also avoid the changes coinciding with Brexit’.

Should we do anything now?

The proposed changes will impact on cashflow and require businesses to use appropriate accounting software. Despite the delay the government remains committed to implementing this reverse charge, so its worth determining whether it will effect you and how it will work if it does, before the measures are implemented.