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‘Disastrous’ reverse charge VAT change delayed

A decision to delay the implementation of new VAT rules has been hailed as a victory for common sense.

It was announced on Friday that the implementation of the domestic reverse charge, which makes payment of the tax responsibility of the customer rather than the supplier, will now come into effect on 1 October 2020.

A statement from HMRC said that the change would be delayed because industry representatives had raised concerns that the sector was not ready for the change.

A group of construction industry bodies wrote to the government warning of the problems it would cause companies last month, asking for a delay until April.

The change is part of anti-fraud rules aimed at targeting VAT-related fraud in supply chains within construction.

The statement from HMRC added that the body “remains committed to the introduction of the reverse charge and has already increased compliance resource”.

Federation of Master Builders (FMB) chief executive Brian Berry called the delay “a victory for common sense”.

He added: “I’m pleased that the government has made this sensible and pragmatic decision to delay reverse charge VAT until a time when it will have less of a negative impact on the tens of thousands of construction companies across the UK.

“To plough on with the October 2019 implementation could have been disastrous given that the changes were due to be made just before the UK is expected to leave the EU, quite possibly on no-deal terms.”

Research by the FMB in July found that two-thirds of SMEs weren’t aware of the imminent changes.

Mr Berry added: “What’s required now is for the government and industry to work together to deliver a sector-wide communications campaign, which must include plain English guidance on the changes.

“We also want to work with the government to deliver workshops aimed at construction employers, held in locations across the country, to explain what’s happening and why.”

National Federation of Builders chief executive Richard Beresford said: “Contractors and subcontractors weren’t ready for reverse charge VAT and we are delighted that the government has listened to our industry campaign to seek a delay.

“The government has given us double the time we recommended and this will help us work together to set up improved online guidance, hold workshops and make sure the entire industry understands what reverse VAT charge means for their business.”

HMRC said it would work to raise awareness of the change. Its statement said those who have changed their invoices in preparation for the new rules would be given some leeway.

It said: “HMRC recognises that some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC will take into account the fact that the implementation date has changed.”

When the new rules do take effect, only principal contractors at the top of the supply chain will receive VAT payments, which they will collect from the client before paying it to HMRC.

Monthly cashflow profiles for subcontractors will change, and all contractors will have to take on more administration, understanding who should and shouldn’t be charged VAT.

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