Government delays Reverse Charge VAT

 

In a move that has elated most, HMRC has announced a postponement of the new domestic reverse charge VAT for construction businesses until October 2020. The delay is to provide VAT-registered businesses in the UK with more time to prepare for the changes and adjust their internal procedures.

The official HMRC statement reads as follows:

“Government has listened to the concerns raised by industry representatives and recognises that some businesses in the construction sector require more time to implement the VAT domestic reverse charge for building and construction on 1 October and that this is close to the date the UK is due to exit the EU,”

We believe the Government remains committed to the introduction of the reverse charge due to large amounts of unpaid VAT in the construction industry, so it’s important if you’re a construction based business, to plan ahead and ensure you have sufficient working capital in place, carefully forecasting the changes in cash-flow to avoid any trading interruptions.

What It Really Means For Your Business

 

 

The fact is, many businesses are still not up to speed with reverse charge VAT and not actually aware of the implications. So what could these changes mean to your construction business?

The new rules will exclusively affect VAT-registered construction service businesses. When the new policy is implemented, UK businesses that procure supplies for construction services will be required to account for the VAT due on the supplies on their VAT return – not the supplier. Essentially, in simple terms, the main contractor will hold on to the VAT of sub-contractors and pay this directly to HMRC.

Whereby in the past you have probably used these additional funds to assist with paying on-going expenses whilst you grow, possibly chasing down invoices towards the 7th of the month to be able to meet your quarterly VAT payment, under the new rules, this will not be possible.

 

Plan Ahead

 

Aspreys are in regular communication with Xero to ensure sufficient software resources are available to all our clients by October 2020. If you wish to find out more on how this could affect your business, or how best to plan ahead, please contact us directly on 01932 485325 or [email protected] and we will be more than happy to provide additional guidance.