Brexit: New VAT rules disrupted twice within weeks

11th Sep 2019
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Brexit has been partially blamed for disrupting new VAT rules for the second time in about a month.

A major piece of VAT legislation, planned to come into effect in just three weeks – the domestic reverse charge - has been scrapped for this year, with Brexit cited as one of the factors.

HMRC revealed that the change affecting building and construction services is being shelved for a whole year - the new date being 1 October 2020. It was due to take effect in just a few weeks - 1 October 2019 - but this was only weeks ahead of the current date Britain is officially supposed to be leaving the EU - 31 October.

This delay comes hot on the heels of HMRC citing Brexit for halting the enforcement of a separate set of VAT reforms. Officials highlighted the UK’s imminent departure from the EU as one of the reasons they would be holding back from punishing firms for failing to comply with new digital VAT rules.

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A briefing note from HMRC stated the delay to the domestic reverse charge would “avoid the changes coinciding with Brexit”, while a statement for media outlets also ‘recognised’ that the planned introduction was “close to the date the UK is due to exit the EU”.

The briefing note also referenced industry representatives’ concerns that “some businesses in the construction sector are not ready to implement” the change, which is designed to remove the scope for fraudsters to steal VAT owed to HMRC.

It read: “To help these businesses and give them more time to prepare, the introduction of the reverse charge has been delayed.”

The Chartered Institute of Taxation welcomed the one year delay, also identifying Brexit among the reasons it was a positive move.

Linda Skilbeck, Vice-Chair of CIOT’s Indirect Taxes Sub-committee, said: “It would have led to an additional influx of calls to HMRC’s phone lines, while HMRC and its call centres were already busy dealing with the implementation of Making Tax Digital, as well as the consequences of Brexit.”

During August, HMRC cited businesses’ need to get ready for Brexit as a factor in its lenient approach to issuing penalties during the first phase of Making Tax Digital for VAT.

Officials said in a statement: “HMRC is not enforcing penalties and is instead supporting businesses through the transition to MTD, especially at a time when they are fully focused on preparations for leaving the EU on 31 October.”

Government departments are continuing to state 31 October is the day Britain will officially leave the EU, with huge advertising campaigns to prepare the public. This is despite opposition MPs passing legislation before the suspension of Parliament on Monday night, which means the Prime Minister must ask the EU for an extension to Article 50 to avoid leaving with no deal on this date.

That is, unless he’s secured a new deal or MPs vote through no-deal. It remains to be seen whether the Government will comply with the bill, which is aimed at avoiding what opponents to ‘no-deal’ call a ‘crash-out’ Brexit.

The Prime Minister has insisted he will refuse to request an extension, despite the bill becoming law.