Reverse Charge VAT delayed until March 2021

The Treasury has announced that the introduction of Reverse Charge VAT will be delayed for a further five months until 1 March 2021.

The announcement followed the Construction Leadership Council (CLC) calling for its delay in its Roadmap to Recovery strategy that was published last week. 

Changes to VAT charging are being introduced in order to tackle the growing problem of VAT fraud in the construction industry. HMRC’s new domestic reverse charge for construction services were due to come into force in October 2019 but were then delayed by a further 12 months. When it does come into operation next year its introduction seems likely to have a significant impact.

David Redfern from DRS Tax Claims said: “These changes mean that the recipient of the construction services and supplies will now be responsible for charging themselves the VAT and accounting for it, and businesses which provide construction services will need to state clearly on their invoices that the VAT is subject to this reverse charge.”

The implementation of VAT Reverse Charging is likely to have a significant impact on the cashflow of specialist contractors. Firms have been using VAT receipts as working capital and despite a further delay companies in the supply chain will need to make sure that they are prepared when it begins.

Contractors affected by the new VAT regulations could lose 20 per cent of the cash going through their business. As a result a £1 million turnover contractor, will lose access to £200,000 of cashflow.