The VAT reverse charge for building and construction services has been delayed until 1 March 2021, the government has announced.
The charge had originally been due to commence in October 2020, having previously been delayed by a year in September 2019. But industry chiefs had warned that the Covid-19 pandemic left small and medium-sized (SME) house builders unprepared to adhere to the changes.
Sixteen construction leaders penned a letter to chancellor Rishi Sunak this week calling for the VAT reverse charge to come into effect in 2021 — and the government has granted the request.
The government announced the delay on Friday morning, which has been described by the Federation of Master Builders (FMB) as a “victory for common sense”.
Brian Berry, chief executive of the FMB, which spearheaded the cross-industry campaign to delay the implementation of the VAT reverse charge, said: “The coronavirus pandemic has had significant impacts on cashflow for small to medium-sized (SME) construction firms. The reverse charge VAT is being delayed by five months is a victory for common sense.
“While the industry called for a delay of one year, five months’ breathing space will go some way to helping them recover. In the meantime, the industry will continue working with officials in HM Treasury and HMRC to implement a communications campaign that prepares the industry.”
Changes to the VAT Legislation
The government will also amend the original VAT reverse charge legislation, published in April 2019, to bring certainty for subcontractors with regards to what they should do.
Prior to the VAT reverse charge, subcontractors have accounted for VAT on certain construction services, and deducted VAT on supply as an input. But from 1 March 2021 this will need to be paid directly to HMRC.
Now, the new rules make it a requirement for businesses to be excluded from the reverse charge. This is because they are end users or intermediary suppliers. Instead they must inform their subcontractors in writing that they are excluded from the charge.
HMRC says the additional amendment is designed to make sure both parties are clear whether the supplier is excluded from the reverse charge.