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VAT reverse charge on construction services to be further delayed

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The introduction of a domestic reverse charge for construction services is to be delayed until 1 March 2021.

The Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) (Change of Commencement Day and Amendment) (Coronavirus) Order, SI 2020/578, will change the commencement date in the principal order – the VAT (Section 55A) (Specified Services and Excepted Supplies) Order, SI 2019/892 – from 1 October 2020 to 1 March 2021.

Revenue & Customs Brief 7/2020: domestic reverse charge VAT for construction services - delay in implementation explains that this further five-month delay (implementation previously having been put back by 12 months from the original 1 October 2019 start date) recognises the impact of coronavirus on the construction sector. Given the potential for increased fraudulent activity during the same period, the Brief notes that 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 CIOT notes that the delay should help ‘lessen the chance of disputes between suppliers and customers as to which party in the supply chain should be accounting for VAT’ but points out that many businesses operating in the sector will already face cashflow problems caused by coronavirus, and that these could be compounded by the reverse charge.

The order also makes a second change to the principal order, to require end users and intermediary suppliers, in order to be excluded from the reverse charge, to notify their sub-contractors of their end user or intermediary supplier status in writing. This change aims to ‘make sure both parties are clear whether the supply is excluded from the reverse charge’.

Issue: 1491
Categories: News