HMRC U-turn as VAT reverse charge in construction is delayed by 12 months

09 September 2019

  • The VAT reverse charge in construction was due to take effect from 1st October 2019
  • On 6th September 2019 HMRC published a policy paper confirming its delay until 1st October 2020
  • The reason provided for this delay is that “industry representatives have raised concerns that some businesses in the construction sector are not ready…”
  • HMRC will focus additional resource on identifying and tacking VAT fraud in the construction industry in the intervening year
  • HMRC promise to work closely with the construction sector to raise awareness and provide guidance and support
  • Those who have already amended processes and procedures in preparation for 1st October 2019 can rest assured as HMRC have stated, where genuine errors have occurred, HMRC will take into account the change in implementation date
  • Many construction businesses will have already opted for monthly VAT returns in preparation for 1st October 2019 to mitigate cash flow difficulties. HMRC state this can be reversed via the HMRC website

Aspire comment

This may have been a welcome surprise to many, whilst frustrating to others who have been busy spending time and money on preparations for 1st October 2019. For those of you who have undertaken preparation, this will not have gone to waste as HMRC state they remain committed to introducing this change – you may just need to revisit it and refresh your memory closer to 1st October 2020. It will also provide ample time for software providers to ensure their updates are compliant and for sufficient tests to be run.

The construction industry is in agreement that HMRC had not done enough to prepare those who will be affected by the reverse charge. We were told by Nick Chambers of HMRC’s VAT Serious Non-Compliance and Fraud Team, in April 2019 that it was intended for there to be a dedicated webpage but due to Brexit and Making Tax Digital, this had not been done. Perhaps HMRC will now provide the necessary resource and provide more assistance in the next 12 months, as the policy paper states.

The policy paper refers to the delay avoiding the changes coinciding with Brexit – does this mean that other legislative change will be put on hold? For example, the off-payroll extension to the private sector expected to take effect from April 2020?