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VAT Reverse Charge – the low down for construction services

Following intense lobbying from the construction industry, last month HMRC announced that there will be a one-year delay to the introduction of the Value Added Tax (VAT) reverse charge for the sector. It is now due to be launched on 1 October 2020.

With the primary aim of tackling fraud, the VAT reverse charge is set to prevent businesses in the construction industry from receiving VAT payments from their clients. Instead the responsibility of paying VAT will sit with the client themselves. This is particularly worrying for small businesses, who already must remain vigilant to the possibility of late payments.

VAT Reverse Charge – the low down for construction services

Who does it apply to?

It applies to all VAT-registered businesses who are registered with the CIS and use it for payment reporting. Primarily, any services provided by UK construction contractors and sub-contractors. Any businesses not VAT registered will not be impacted by the change and the supplier must adhere to the standard VAT rules.

So with the extra year, how can construction businesses use this delay to ensure that they are ready for the change?

  • Review suppliers to determine whether they will be subject to the reverse charge from October 2020. If the tax point is before 1 October 2020, current VAT rules will still apply but anything on or after that date will be impacted.
  • Familiarise yourself with anything that may be exempt from the reverse charge.
  • Use the time to review accounting systems to ensure that any adaptions needed in order to prepare for the change are made.
  • Implement measures to ensure that if VAT is not received from a customer after 1 October 2020, any negative repercussions can be handled.

Further information on the reverse charge can be found on HMRC’s website, here.

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