HMRC postpones VAT change for construction sector

Out-Law News | 09 Sep 2019 | 2:55 pm | 1 min. read

HM Revenue & Customs (HMRC) has announced it is postponing implementation of a significant change to the way VAT is paid on building and construction services in the UK, after industry lobbied for more time to prepare.

HMRC announced the 12-month delay to the implementation of the VAT reverse charge for building and construction services last week, responding to concerns raised by the industry that some construction firms were not ready for the changes. The introduction of the reverse charge will now take place on 1 October 2020, which HMRC said would also avoid the changes coinciding with Brexit.

Construction tax expert Richard Croker of Pinsent Masons, the law firm behind Out-Law, said the move was “welcome news”.

“It is reassuring that HMRC have listened to industry in postponing this change," Croker said. "The original timing for its introduction looked increasingly unfortunate given economic news and the deadline for Brexit.”

Bodies which had lobbied for a delay in the implementation of the reverse charge included the Federation of Master Builders and the Chartered Institute of Taxation, both of which said the construction and building sector needed more time to prepare for the change.

The new rule means that a customer within the construction industry receiving the supply of construction services will have to pay the VAT direct to HMRC rather than paying it to the supplier.

The reverse charge is designed to combat VAT fraud in the building and construction sector. It prevents the supplier from charging what purports to be VAT to the customer, but then absconding with the VAT element and not paying it over to HMRC.

HMRC said it remained committed to the introduction of the reverse charge. The tax authority has already put in place a compliance strategy for tackling fraud in the construction sector using what it has described as “tried and tested compliance tools”.

HMRC said it would use the extra year to focus additional resource on identifying and tackling existing perpetrators of fraud. It is also planning to work closely with the construction sector to raise awareness and provide guidance and support to make sure all businesses will be ready for the new implementation date.

HMRC said it was aware that some businesses would have already changed their invoices to meet the needs of the reserve charge, and would not easily be able to change them back before the original implementation date of 1 October. It said it would take into account “genuine errors” caused by the change in the implementation date.

Businesses which had opted for monthly VAT returns ahead of the original 2019 implementation date would be able to reverse this by using a “stagger option” on the HMRC website, it said.