Construction industry leaders demand VAT Reverse Charge is delayed until 2021
Construction industry leaders have warned that the coronavirus pandemic has left small and medium sized (SME) builders unable to adhere to the VAT changes which are due to come into effect in October 2020.
Industry leaders representing thousands of construction companies in the UK have teamed up to request the government delays the VAT reverse charge, which they say could financially ruin some SME home builders.
The coronavirus pandemic has hit the economy hard and the concern is that many construction firms and SME builders lack the financial resources and staff, particularly for those businesses with furloughed workers, to be able to adhere to the administrative requirements of the upcoming VAT changes.
The Federation of Master Builders (FMB), which represents 7,500 SME builders in the UK, says that with many required staff currently on furlough, the pressure on cash-strapped firms will become overwhelming.
What is the VAT Reverse Charge?
The VAT reverse charge means that VAT charges on certain construction services will need to be paid directly to HMRC by the customer or main contractor. Currently, the subcontractor accounts for this VAT, and deducts VAT on supply as an input. Under the new rules, the customer will declare both the output VAT and the input VAT on their VAT return, giving a net cash position of NIL, subject to any partial exemption calculations.
The construction industry has faced issues with fraud though, whereby some businesses have charged VAT for the services then failed to pay the bill. HMRC has introduced the reverse charge to combat this. The reverse charge will make it the customer’s responsibility to account for VAT. For more detailed guidance read our previous article.
When is it due to come into effect?
Originally the change was due to come into effect in 2019 which was delayed until October 2020, when industry leaders warned that the introduction of the charge could clash with Brexit, and that the new measures would squeeze cash flow for SME businesses no longer receiving VAT payments.
The information was correct at time of publishing but may now be out of date.