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VAT: Construction industry reverse charge delayed again

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The domestic reverse charge for the construction industry has been delayed once again by five months to 1 March 2021. Neil Warren explains the implications of this surprise move.

5th Jun 2020
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On Thursday 28 May, HMRC’s press office confirmed that the new domestic reverse charge rules for the construction industry would commence on 1 October 2020. But just a week later, HMRC announced that the introduction would be delayed until 1 March 2021.

I am very impressed with how quickly decisions are being made on so many tax and business issues to help businesses survive and hopefully prosper in these difficult times. The five-month delay is both welcome and sensible, one less thing for builders to worry about. But what does it mean for our clients?

Here are four key issues to consider:

1. Cash flow challenges

My concern with the new start date is that it is very close to 31 March 2021, which is the deadline set for paying the VAT arrears deferred during the VAT payment holiday between 20 March and 30 June 2020. This creates potential cash flow issues.

Example

Bob is a subcontractor builder working for main contractors on commercial projects, which means his business will be affected by the new reverse charge rules. He uses the cash accounting scheme on his VAT returns, which are completed on a calendar quarter basis. He invoiced two big jobs as follows:

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