Implementation of construction VAT reverse charge further delayed

The Government has announced in Revenue & Customs Brief 7 (2020) that the implementation date for the reverse charge on construction services will be further delayed until 1 March 2021.

Businesses will now have a further period to plan for the change, although those businesses that have already implemented changes in advance may have to delay or reverse those changes in the meantime.

In addition, the original legislation will be amended to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers.

Background

The Government originally enacted legislation in April 2019 to introduce a reverse charge on certain supplies of construction services with effect from 1 October 2019. The Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2019 (SI 2019/892) will, in general terms, introduce a VAT reverse charge on supplies of construction services to which the provisions of the Construction Industry Scheme (CIS) also apply.

However, since the purpose of the legislation is to prevent missing trader fraud opportunities within the construction industry, the legislation includes a number of exceptions for low risk situations, such as where the supply is made to the end user or certain connected intermediaries. Further details are set out in “VAT reverse charge for construction services”.

In September 2019, the Government announced that the reverse charge would be implemented a year later, on 1 October 2020.

This was is in part to allow businesses more time to prepare for the introduction of the reverse charge, since the Government had received representations from the Industry that some businesses were not yet prepared to operate the charge.

The Government has now further delayed the implementation of the reverse charge until 1 March 2021. The announcement explains that this is due to the impact of COVID-19 on the construction sector. The aim is to help businesses overcome the effects that the coronavirus pandemic has had on them and give them more time to prepare for the new rules.

In addition, the announcement explains that the Government will introduce a change to the original rules. This will make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers. The additional amendment to require end users and intermediary suppliers to notify their sub-contractors of their end user or intermediary supplier status in writing is designed to make sure both parties are clear whether the supply is excluded from the reverse charge. It reflects recommended advice published in HMRC guidance and should help bring certainty for sub-contractors as to the correct treatment for their supplies.

Comments

The further delay will be welcomed by many businesses in the construction industry already hard pressed to cope with the effects of COVID-19.

However, businesses which have already prepared for the introduction of the reverse charge will now have to delay or reverse any planned changes to their systems.