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Domestic Reverse Charge for Construction Sector Delayed

In a surprising and somewhat last minute change, HMRC has announced they are postponing the intended implementation date of 1st October 2019, which was planned to be the start of the new regulations for the Reverse Charge Mechanism for constructions services. On 6th September, HMRC published a brief confirming that the proposed new measures, which are believed to be largely targeted at reducing fraudulent activities within the sector, will be delayed for a fully year and now be implemented as of 1st October 2020.

HMRC have said alongside the date change, that a number of representatives from the construction sector had raised numerous concerns that (despite the lengthy lead-in period and advanced warning) many businesses in the sector are not yet ready for the new VAT accounting procedures.

Under the new reverse charge rule, businesses engaged in the supply of construction services would no longer be responsible for output VAT on the transactions. Instead, the customer was liable for the VAT payment. The customer would then declare the output VAT due on the transaction and, where entitled to do so, would reclaim the VAT via the reverse charge mechanism listing it as input VAT on its own VAT return.

The procedure has been used by HMRC to combat VAT fraud in other sectors, and has proven effective in reducing fraud, as making the customer responsible for VAT accounting prevents suppliers from collecting VAT from customers and then failing to account for that VAT to HMRC.

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