The UK Government has announced that due to the impact of the coronavirus on the construction industry, the introduction of reverse charge VAT has been delayed from October until 1st March 2021.
This change is important for businesses registered for VAT that operate in the construction sector.
What is Reverse Charge VAT?
Reverse charge VAT was due to begin in October 2020. Now pushed back to March next year, this change will mean that customers, not suppliers, must account for the VAT on construction supplies on their VAT return.
The impact of the coronavirus pandemic and subsequent lockdown has meant that businesses had less time to adjust and accommodate this change in tax policy. In response, the Government has pushed the change date back.
This means that construction businesses have until March next year to develop workable internal policies that conform with this new legislation.
Why is this Change Being Made?
Reverse charge VAT is intended to make it harder for fraudsters to steal the VAT due to HMRC. The Government policy change brings these measures in a similar response made against criminal threats for mobile phones, computer chips, emissions allowances, gas and electricity, telecommunication services and renewable energy certificates.
The main impacts on construction businesses will be that they must ensure their administration accounts for this change, and to anticipate a reduction in cash flows, as some businesses will no longer receive VAT payments from customers.
The HMRC has stated it “remains committed to the introduction of the reverse charge and has put in place a robust compliance strategy for tackling fraud in the construction sector using tried and tested compliance tools.”
For more information on the topics discussed here, please visit the Government’s website here.
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