The controversial introduction of the VAT reverse charge in the construction sector has been postponed by a year and will now take place on 1 October 2020, following concerns that the industry wasn’t ready for this monumental change.
The new VAT reverse charge had been due to come into force on 1 October this year, but having been informed by industry bodies that this would cause chaos, the Government has relented and provided a 12 month extension.
HM Revenue & Customs has said it “remains committed to the introduction of the reverse charge and has already increased compliance resource”.
From October 2020, it will become the responsibility of the contractors supplying construction services who are deemed to be an end user to pay over the VAT that would have previously been charged and accounted for by their sub-contractors.
The regime affects all VAT registered contractors and sub-contractors supplying and receiving services covered by the construction industry scheme, which are liable for VAT at the standard or reduced rate.
Supplies which will be affected by the reverse charge include, but are not limited to:
- constructing, altering, repairing, extending, demolishing or dismantling buildings including walls roadworks railways aircraft runways and harbours.
- installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building and even the internal cleaning of buildings and structures, so far as carried out in the course of their construction etc.
- the painting or decorating of the inside or the external surfaces of any building or structure is included.
The VAT reverse charge also covers materials supplied with these services.
The rules concerning the VAT liability of construction services are complex and will, from October 2020, effectively be determined for the entire supply chain of contractors by the final contractor in the chain.
Contractors and sub-contractors further down the chain of supply will lose the cash flow advantage gained from being paid before having to account for VAT on a VAT return, so they should prepare themselves for this.
Although there is now a 12 month delay, it is still essential that those in the industry begin to take steps now to prepare themselves for the changes in 2020.
If you require help with the VAT reverse charge, please contact us today.