A few months ago, we wrote about HMRC’s plans to introduce a reverse charge VAT mechanism to help tackle VAT fraud in the construction industry. The change was due to take place on 1 October 2019, but the government has now announced that it will be delayed for 12 months.

The government has responded to industry concerns by delaying the proposed introduction of the reverse charge for construction services until 1 October 2020. Industry insiders said many businesses were unprepared for the change, claiming it could lead to “industry chaos” and a spike in insolvencies.

The Federation of Master Builders had written to the government asking for extra time for businesses to prepare for the new rules and avoid them coming in at the same time as the UK’s proposed exit from the EU.

Its chief executive, Brian Berry, said the delay was “sensible and pragmatic”. Mr Berry also criticised HMRC’s “poor communication and guidance” about the reverse charge saying that “despite the best efforts of construction trade associations to communicate the changes to their members, few employers have even heard of reverse charge VAT”.

HMRC has said it remains committed to introducing the reverse charge and will work closely with the sector to raise awareness about it so that businesses are ready for the new date.

In the meantime, HMRC recognises that some businesses may have already changed their invoices to apply the new rules from this October and are not able to change them back in time. If this leads to genuine errors, HMRC says it will take into account the late change to the implementation date. A statement by HMRC says: “Some businesses may have opted for monthly VAT returns ahead of the 1 October 2019 implementation date, which they can reverse by using the appropriate stagger option on the HMRC website.”

If you have any queries regarding the reverse charge or its delay, please contact Nick Muir.