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Domestic reverse charge delay explained
The government has announced that it will delay the implementation of the domestic reverse charge until October 2020, citing industry concerns and Brexit as key reasons behind the postponement. Nottingham chartered accountants Clayton & Brewill explains what you need to know about the reverse charge and why it has been delayed.
The delay
HMRC has now agreed to delay implementation of the “domestic reverse charge” until 1st October 2020. If the VAT changes had come into place next month as originally planned, more than 150,000 construction companies would have faced a 20% drop in cash flow.
The postponement follows a lobbying campaign from all sides of the industry, which warned that the charge would cause chaos across the construction sector. In August 2019, a coalition of construction associations wrote to the chancellor of the exchequer asking for a six-month delay. They argued the charge should come into place when it will have less of a negative impact on the tens of thousands of construction companies across the UK.
What is the domestic reverse charge?
The domestic reverse charge (also known as the reverse charge) is a major change to the way VAT is collected in the building and construction industry. It means the customer receiving the service will have to pay VAT due to HMRC, instead of paying the supplier. The charge only applies to individuals or businesses registered for VAT in the UK (but it will not apply to consumers). This will affect those who supply or receive specified services that are reported under the Construction Industry Scheme (CIS).
Why has it been delayed?
It is hoped that the delay will provide those affected with more time to prepare for the new charge. Over the next year, HMRC will work closely with the sector to raise awareness and provide additional guidance and support to make sure all businesses will be ready for 1st October 2020.
How you can prepare for the domestic reverse charge
There are a number of recommended ways in which you can prepare for the reverse charge:
- check whether the reverse charge affects either your sales, purchases or both
- make sure your accounting systems and software are updated to deal with the reverse charge
- consider whether the change will have an impact on your cashflow
- make sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will operate