Builders’ cashflow chaos prompts further reverse charge VAT delay

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The domestic reverse VAT charge for construction services has been delayed until 1 March 2021.

The way VAT is collected in the building and construction industry was originally due to change from 1 October 2019.

Less than a month before it was due to kick in, the change was put on hold for 12 months to avoid the measure clashing with one of the dates scheduled for the UK’s exit from the EU.

With construction firms and builders feeling the strain from COVID-19 and lockdown, HMRC has announced a further five-month delay.

The Chartered Institute of Taxation (CIOT) welcomed the move, with many firms feeling the effects of reduced business activity.

Linda Skilbeck, vice-chair of the CIOT’s indirect taxes committee, said:

“We welcome the further delay because of the many unexpected pressures caused by the pandemic and the lockdown on construction businesses.

“A significant proportion of those are SMEs, and the cashflow effect of the domestic reverse charge will be significant.

“The delay should lessen the chance of disputes between suppliers and customers as to which party in the supply chain should account for VAT.”

The reverse charge will apply to VAT-registered individuals or businesses supplying specified services that are reported under the construction industry scheme.

It aims to prevent VAT fraud in the construction industry, where suppliers charge their customer for VAT but keep the money.

Get in touch to discuss the reverse charge.