VAT reversal for the construction industry (domestic reverse VAT charge). Will this ever be put into action?

If you work in the construction industry, you may have heard about the implementation of reverse charge VAT, which was supposed to take effect on October 1, 2019. This was delayed by a year to October 2020 due to the industry's lack of readiness, and it has now been delayed again due to Covid 19.

The most recent update indicates that the changes will take effect on March 1, 2021. Let us take a look at these changes and why they are being implemented.

What is the point of these modifications?

Simply put, there are two main reasons for the change: 1) to speed up tax payments to the Exchequer, and 2) to reduce fraud.

Under the current system, suppliers charge customers VAT and then pay HMRC the Vat collected on a quarterly basis. This improves cash flow for suppliers while delaying tax payments to the Exchequer.

The current system also allows unethical suppliers to charge customers VAT while failing to account for it to HMRC. It is estimated that the company loses £100 million per year.

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Who will be affected by this?

It will apply to transactions between VAT-registered contractors and Construction Industry Scheme-registered subcontractors. End users and intermediary suppliers are not covered. Many trades are also exempt from this; details can be found on the HMRC website.

How can you get ready?

We recommend that you become acquainted with the changes. The HMRC website is the best place to start. 

Check that your software can handle reverse charges.

Make certain that your customers and suppliers are informed of the changes.

Consider how the changes may affect your cash flow. Some businesses may be eligible for a VAT refund and may benefit from charging to monthly VAT returns. If you've been struggling to submit quarterly returns and now need to submit monthly, it's time to reconsider your workflow. Please contact us (Cheap accountant in London) to see how we can help.

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