In an unusual move, and only three weeks before the intended implementation date of 1 October 2019, HMRC has announced the postponement of the Reverse Charge for Construction Services.
On 6 September 2019, HMRC published Revenue & Customs Brief 10/2019 confirming that the proposed anti-fraud measure is to be delayed until 1 October 2020. HMRC states that representatives from the sector had raised concerns that, despite the long lead-in period, many
businesses in the sector are not yet ready for the new VAT accounting procedures.
Under the new reverse charge rule, businesses engaged in the supply of construction services that are covered by the Construction Industry Scheme (CIS) would no longer have been responsible
for accounting for any output VAT due on the transactions. Instead, the customer was to be made responsible for the VAT. The customer would declare the output VAT due on the transaction and, where entitled to do so, would also reclaim the VAT as input VAT on its own VAT return.
The procedure has been used by HMRC to combat VAT fraud in other industries. Making the customer responsible for VAT accounting prevents suppliers from collecting VAT from customers and then failing to account for that VAT to HMRC.
Source Grant Thornton
