Industry relief as Chancellor announces one-year delay to introduction of VAT reverse charging

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  Posted by: electime      10th September 2019

Move follows letter from construction sector voicing serious concerns

SELECT and other major construction industry bodies have hailed the decision by the UK Government to postpone the launch of the VAT reverse charge scheme.

The announcement of a one-year extension elicited a widespread positive response from leading UK trade bodies, which had written to the Chancellor of the Exchequer asking for a delay, fearing a negative impact on the industry.

SELECT, the campaigning trade organisation for the electrotechnical industry in Scotland, was among 15 organisations which pressed for at least a six-month postponement to implementation for building and construction services.

The measures – which mean the customer receiving the service will have to pay the VAT due to HMRC instead of paying the supplier – were originally intended to come into force next month (October 2019), but will now be introduced in October 2020.

Alan Wilson, Managing Director of SELECT, said: “Along with the other organisations which wrote to Chancellor Sajid Javid last month [August], we are pleased that the serious concerns we raised have been listened to and acted upon.

“If the changes had been implemented precipitately, they could have further increased the burden on construction employers and seriously restricted cashflow.

“Another year will give SELECT member businesses and other companies in the construction sector the breathing space they need to alter their systems and processes.”

A spokesperson for the VAT Serious Non-Compliance and Policy Team said: “The Government has listened to the concerns raised by industry representatives and recognises that some businesses in the construction sector require more time to implement the VAT domestic reverse charge for building and construction on 1 October and that this is close to the date the UK is due to exit the EU.

“The Government provided a long lead-in time for this measure. To help businesses get ready in the next 12 months, HMRC will continue to work closely with the construction sector to raise awareness and provide additional guidance and support to ensure all business will be ready for the new implementation date.”

VAT reverse charging means that businesses which are both VAT and Construction Industry Scheme registered will no longer pay VAT to the majority of their subcontractors.

Instead, VAT will only be paid to firms who supply only labour (employment businesses) and to the merchants and businesses that sell building materials only without any fix.