What is the reverse VAT charge?
The reverse charge is a transformation to the way VAT is collected within the building and construction industry. Once implemented, the end customer receiving services from a contractor (or a chain of contractors) will have to pay the VAT due directly to HMRC instead of their supplier. Affected businesses will need to check whether they are responsible for the VAT payment on each individual transaction, update accounting systems and consider the impact on cash flow. The new scheme aims to tackle VAT fraud within the industry.
Why has it been delayed by twelve months?
Industry representatives requested a delay amid concerns that most businesses were not aware of or prepared for the reverse charge, which would lead to confusion and disputes. As a result, HMRC has changed the start date to 1 October 2020 to give businesses more time to prepare and avoid radical changes coinciding with Brexit.
How does this affect businesses now?
HMRC recognises that some businesses will have already changed their invoices in anticipation of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC will take the change in start date into account.
HMRC guidance on the reverse VAT charge can be found here https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services.