Second deferral to the Domestic Reverse Charge for the Construction Sector
HMRC have just announced a delay to the implementation of the VAT domestic reverse charge for the construction industry until March 1st, 2021.
This is welcome news and follows intensive lobbying by the sector. When the new rules are finally introduced, subcontractors in construction will no longer collect VAT from contractors in a chain of supply. In its place a reverse charge system will apply. This makes the buyer of a construction service liable for VAT accounting in place of the supplier.
The change will have a major impact on cash flow as sub-contractors will no longer benefit from collecting VAT which they do not have to pay over to HMRC until submission of a VAT return. The combination of COVID-19 and the additional negative impact on cash flow has persuaded the government to announce this further delay.
HMRC have also announced some technical changes to the operation of the scheme aimed at providing reassurance to subcontractors of the circumstances in which VAT should still be charged. We will send out more information on this shortly and we will provide detailed support and guidance in the run-up to March 1st, 2021.
Brendan Sharkey, MHA MacIntyre Hudson Head of Construction and Real Estate comments;
"The government’s second deferral in introducing reverse-charge VAT is certainly most welcome and very timely given the pressure businesses are under and will ease the burden on the sector for the rest of the year. As the reverse charge directly impacts cashflow, it could have bought down otherwise viable but ill-prepared companies."
Contact us to find out more
For further information on this subject or to discuss how we can help with your business and its future plans. Please contact Indirect Tax Partner, Alison Horner or send us an online enquiry.