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Many in the construction industry were unaware of the significant change, which was due to take place on 1 October 2019, relating to how VAT is charged in the construction industry. The good news for them is that the implementation of the change has been postponed until 1 October 2020. Although this is a welcome relief to many, it should not be forgotten about and businesses should be aware of the proposed change.
The domestic reverse charge (referred to as the reverse charge) is a substantial change in the way VAT is collected in the building and construction industries. The change is intended to prevent the perceived fraud, where it is believed that suppliers are receiving VAT from customers and then not paying their VAT bill.
Under the reverse charge scheme the responsibility for the reporting of a VAT transaction shifts from the seller to the buyer of goods or services. The customer receiving the goods and services will have to pay VAT to HMRC instead of the supplier. By moving the VAT charge along the supply chain, HMRC is hoping to make this type of fraud impossible.
It relates to all building and construction goods and services that are supplied at the standard or reduced VAT rates and are covered by the CIS Scheme, including: -
The implementation of the reverse charge will, of course, have an administrative impact along with compliance and cash flow issues. Businesses need to make sure that they have accounts systems and processes to handle reverse charge invoices and that their IT and staff are up to date to cope with the changes.
Businesses within the industry should make sure that they are ready for the introduction of the reverse charge on 1 October 2020. If you are unsure what is needed, then you should obtain full advice from your accountant or a VAT expert.