Revenue and Customs Brief 7 (2020) domestic reverse charge VAT for construction services - delay
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Published 5 June 2020
Purpose of this brief
This brief explains that the introduction of the domestic reverse
charge for construction services will be delayed for a period of 5
months from 1 October 2020 until 1 March 2021 due to the impact of the
coronavirus pandemic on the construction sector.
There will also be an amendment to the original legislation, which
was laid in April 2019, to make it a requirement that for businesses to
be excluded from the reverse charge because they are end users or
intermediary suppliers, they must inform their sub-contractors in
writing that they are end users or intermediary suppliers.
Who should read this brief
Businesses registered for VAT that are in the construction sector.
A domestic reverse charge means the UK customer who gets supplies of
construction services must account for the VAT due on these supplies on
their VAT return, rather than the UK supplier.
This removes the scope for fraudsters to steal the VAT due to HMRC
and follows similar measures introduced in response to criminal threats
for mobile telephones, computer chips, emissions allowances, gas and
electricity, telecommunication services and renewable energy
There has been a long lead-in time ahead of the anti-fraud measure
coming into force to allow for the potential cash-flow and
administrative impacts the change will have on businesses.
A technical consultation on the draft legislation and its impact
took place in summer 2018 and the final legislation and guidance were
published in November 2018. The domestic reverse charge for building
and construction services was originally planned to come into force on
1 October 2019, but this was delayed for a year in response to industry
concerns that some businesses were not ready to implement the changes
Businesses need to adapt their accounting systems for dealing with
VAT and there will be a negative impact on the cash-flows for many
affected businesses, as they will no longer get VAT payments from
customers for services where the reverse charge applies.
Explanation of the change
To help these businesses overcome the effects that the coronavirus
pandemic has had on them and give them more time to prepare, the
introduction of the reverse charge has been delayed for a period of 5
months until 1 March 2021.
The intervening period
HMRC remains committed to the introduction of the reverse charge and
has put in place a robust compliance strategy for tackling fraud in the
construction sector using tried and tested compliance tools.
In the intervening period, HMRC will continue to focus additional
resource on identifying and tackling existing perpetrators of the
fraud. It will also work closely with the sector to raise awareness and
provide additional guidance and support to make sure all businesses
will be ready for the new implementation date.
The additional amendment to require end users and intermediary
suppliers to notify their sub-contractors of their end user or
intermediary supplier status in writing is designed to make sure both
parties are clear whether the supply is excluded from the reverse
charge. It reflects recommended advice published in HMRC guidance and
brings certainty for sub-contractors as to the correct treatment for
their supplies. If followed, it will remove a concern that HMRC may
seek to challenge the reverse charge treatment where a business that
qualified as an end user or intermediary supplier had not given any
notification of their status.
HMRC will update the reverse charge
guidance to reflect the change in the implementation date and
the need for end users and intermediary suppliers to inform suppliers
where they want to be excluded from the reverse charge .
For more information about this announcement email: firstname.lastname@example.org.
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Article Published/Sorted/Amended on Scopulus 2020-06-05 22:36:58 in Tax Articles