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VAT: Reverse charge for builders delayed until 2020

In a move hailed as a 'victory for common sense', the government has announced a 12-month delay to the introduction of the domestic reverse charge VAT for construction services, citing industry concerns and Brexit as the reasons behind the postponement.

6th Sep 2019
Clock in the helmet
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In a short briefing on gov.uk, the government announced it would be putting the introduction of the domestic reverse charge for construction services on ice for a period of 12 months until 1 October 2020.

The brief explained that industry representatives had "raised concerns" that many construction sector businesses were not ready to implement the changes on the original date of 1 October 2019. To help them prepare, and to avoid the new rules kicking in at the same time as the UK's potential exit from the European Union, the reverse charge has been delayed for 12 months until 1 October 2020.

'Construction chaos' avoided?

Industry insiders, including the largest trade association in the UK's construction sector, had called on the government to delay the changes, citing research findings that the charge could lead to a spike in company insolvencies and ‘construction chaos’.

In a statement, HMRC said that it "remains committed" to introducing the charge and in the intervening year it will focus additional resource on identifying and tackling existing perpetrators of VAT-related fraud in the industry. HMRC also committed to working closely with the sector to raise awareness and provide additional guidance to make sure all businesses will be ready for the new implementation date.

The tax authority recognised that some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC has stated that it will take into account the late change in its implementation date.

"Some businesses may have opted for monthly VAT returns ahead of the 1 October 2019 implementation date, which they can reverse by using the appropriate stagger option on the HMRC website," said the statement.

'Victory for common sense'

Reacting to the news, Brian Berry, Chief Executive of the Federation of Master Builders, hailed the decision as "sensible and pragmatic".

"To plough on with the October 2019 implementation could have been disastrous given that the changes were due to be made just before the UK is expected to leave the EU, quite possibly on ‘no-deal’ terms," said Berry.

The FMB chief went on to criticise HMRC's "poor communication and guidance" around the issue. "Despite the best efforts of construction trade associations to communicate the changes to their members, it’s concerning that so few employers have even heard of reverse charge VAT," he said.

Berry went on to say that it was "reassuring" that the government had listened to the construction industry. "What’s required now is for the government and industry to work together to deliver a sector-wide communications campaign, which must include plain English guidance on the changes. We also want to work with the government to deliver workshops aimed at construction employers, held in locations across the country, to explain what’s happening and why," concluded Berry.

Replies (25)

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Pillow May Ltd
By pillowmay
07th Sep 2019 09:41

This is a good thing but why change their minds less than 1 month before the start date?! We've already written to our clients last week getting all the arrangements in place for next month & now we've got to cancel all the arrangements (= more work and makes us look stupid!). I thought we had left it pretty much to the last minute only communicating with clients one month ahead!

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By Ken Howard
07th Sep 2019 11:14

HMRC really need to be disbanded. They're really a hopeless load of incompetent fools. It's one thing after another. They trot out new rules, everyone tells them they're unworkable, they insist on carrying on, and then at the last minute, they seem to realise their plans are stupid and backtrack. History repeats itself time and time again.

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By GHarr497688
07th Sep 2019 11:32

Its really good they have postponed this but they need to look into what they are doing to small business. A year ago I was complaining that I could not even email HMRC and now its just the opposite they want you to do nothing but email. Lots of people are lacking digital capabilities in the UK and Government reports show this. If you look at most private business they have had to back track on all digital communication ( including my business) . HMRC should put a halt to the advances in digital until its looked at the results of MTD for VAT including looking at what's behind the API on the other side and how poorly some records might be when looked at with CT and other taxes. They are making a big big error of judgment and have been badly advised. HMRC please - more written advice by traditional letter with more incentives for compliance . Otherwise you will get resistance and awkward attitudes. Force never works over logic.

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By jon_griffey
07th Sep 2019 12:19

I had set aside this weekend to formally communicate with clients about the new reverse charge rules. Should have addressed it a bit sooner, but had other priorities.

There's a strange feeling of satisfaction when procrastination pays off.

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By GHarr497688
07th Sep 2019 12:26

it didn't pay off for me with MTD !!

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By HeavyMetalMike
08th Sep 2019 21:42

Well our staff just did a webinner (Friday 6th, why didn't I look at AWEB first!!).
But I too have been a bit slow in mailshotting. Yay, can now wait a while.....

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By mkowl
09th Sep 2019 09:55

Yes was planning to do the same, just thought go online and check if any recent developments and yes there was.

Good job I didn't make better use of the time by watching the cricket instead

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By Tom 7000
09th Sep 2019 10:50

:P

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By AnnAccountant
09th Sep 2019 08:39

The government should really be made to understand the costs and trouble they put everyone to when they change their minds at the last minute. Still, I doubt they'd care.

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By kestrepo
09th Sep 2019 09:41

Saves me a job - I was going to do an email out today about the changes!! I think one of the key indicators that there was an issue was that the HMRC Reverse Charge Webinar was so popular that it was completely subscribed and couldn't be accessed by thousands of people.

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By Ian Lawrence
09th Sep 2019 09:50

Unbelievable how unprofessional am I going to look now telling my clients "only kidding, forget all that"

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By Peteralco
09th Sep 2019 09:54

Ha, no brownie points for being proactive. There's another x no. of hours we wont get back....there is no justice!

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By robbie2016
09th Sep 2019 09:59

Thanks Boris!

And there is plenty of other bureaucratic bullsh!t to heap on the bonfire while you are at it.

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By markabacus
09th Sep 2019 10:14

Like others here another load of hours wasted at my exepnse. I emailed our clients 10 days ago then emailed them Fri night to say it was all off till Oct 2020.
Also updated our MTD compliant spredsheet that a few client's use so that it was DRC complaint
Oh well, it'll be ready for next year if I haven't retired by then.
Rec'd HMRC email this morning advising they have a webinar on Sept 30th re DRC, ho ho ho
Also note HMRC have updated their website............... I could here my wife from the other end of the house.............. CIS listings, was 1 page now 3 and after the submission she couldn't get it to print completely. In the end I had to save it to her desktop as and HTML and reopen it in MS Edge [we use Firefox] and then print it.
So HMRC have time to break thing that work what a shame they can't fix the iability for me and other accountants to print of all of their clients Tax Summaries. I've had a technical fault lodged with them since DECEMBER 2016!!!!!!!!!!!!!! They've admitted it's their fault but basically one of the directors wrote advising they had more important stuff to do.
We just love their questionnaire when we logout and the question re would we recommend their service................ we have a choice????

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By fishfishyfishfish
09th Sep 2019 10:26

Just farcical. Like many commentators here we've already prepared and despatched detailed guidance for our construction clients, run seminars, held one to ones - the lot.

It's not just the waste and inconvenience, the bigger issue is that it further damages trust between business and HMRC.

The next time a new initiative is announced, it becomes still more likely that people will simply sit on their hands and do nothing, in the hope/ expectation that it will be pulled at the last possible moment. And then HMRC will be the first to moan that businesses have not prepared in time. Small wonder really.

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By Donald MacKenzie
09th Sep 2019 10:28

Thanks for nothing HMRC. I have spent ages explaining the "Reverse Charge" rules to my construction clients. I created an easy to understand letter to send to their sub-contractors. I collated email addresses and just this morning I emailed all the sub-contractors. I then saw the AccountingWeb article so have sent out another email to say ignore.
Should my clients have to pay for my time or will HMRC contribute?

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By andyscotland
09th Sep 2019 10:37

So, as usual businesses that have done their homework and were ready will now need to change their systems back for this year, then re-do their preparations next year.

Ludicrous amounts of wasted time, effort and money across the sector.

This is strong evidence that rule changes should as far as possible be brought in as a deadline rather than a fixed transition date.

If the original scheme had been designed and legislated so that companies could change over when ready, but by a certain date at the latest, it would be easy for HMRC to extend the deadline for businesses who weren't ready without causing problems for everyone else.

It would probably also have reduced the number that were unaware/unprepared - with a fixed not-before-or-after date it's natural for people to wait till near the time to sort it out. It's also entirely down to HMRC to get the info out top-down (at great expense) and then subsequently communicate the delay (also at great expense).

With a gradual transition, companies with full-time accountants or proactive advisers would probably start to roll it out early. And as they started asking for reverse charge invoices/status confirmation, the knowledge would start to spread organically within their supply chain.

But it seems the government generally favours cliff edges to anything sensible.

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By Nick Graves
09th Sep 2019 11:14

I was always sceptical of Murray Rothbard's view of the state.

I woke up this morning warming to his views.

The entire Gov't apparatus is a National Embarrassment.

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JD Portrait
By John Downes
09th Sep 2019 12:26

Better late than never.
Is it too much to hope that CIS deductions will also be axed? Why is it only construction companies that are on the receiving end of all this nonsense? The same laws should apply to everybody.

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By klytus
09th Sep 2019 12:59

Posted mine out Thursday night, only for HMRC to postpone it all Friday morning. Any chance HMRC will reimburse for the wasted time (and a new ‘swear jar’)..?

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By rockallj
09th Sep 2019 14:22

Well thanks to the VAT deadline, I was sending out the DRC emails today.
So a lucky escape. But rather than putting this on the long finger for a year, why not scrap it and CIS at the same time too.

As my builder client said today, "this [the DRC] will cripple our cashflow".

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By bendybod
09th Sep 2019 15:32

So they bring a change in with insufficient planning and insufficient communication with those whom it will affect on a ludicrously tight timetable (where have we seen that before).
They send out guidance to suggest to affected businesses that they may want to spend time and effort looking in to whether it would be beneficial for them to change to monthly VAT reporting.
They offer webinars with about a month to go.
Then they realise that they are over-burdening particularly smaller companies and decide not to bother with it after all.
Glad I didn't waste an hour of my time on the software providers' webinars.
Will it be any more organised next year because they've had an extra 12 months for implementation? No, of course not, because HMRC are too snowed under to cope with any more change, never mind their 'customers'.
Another complete and utter shambles at the hands of HM Government.

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By petestar1969
09th Sep 2019 16:02

Excellent, just like MTD when it finally does come in everyone will think I'd been making it up.

Good its been delayed though.

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By AndyC555
16th Sep 2019 12:12

I think a lot of this has to do with the current atmosphere around tax avoidance/evasion.

Tax Justice Warriors from the left have created the impression that it's a lawless tax country where evil tax avoiders are running rings from a hapless HMRC and that there are countless billions in tax just lying around waiting to be taxed if only the government would pass a few new simple laws.

This impression seems to have been accepted without question by the public and has resulted in the government desperately wanting to be seen to be doing something. The results are endless initiatives and campaigns and law changes that resemble giant pile-drivers being used to crack the smallest of nuts.

I can't help think that the accountancy bodies ought to be doing something. Every time some ridiculous story enters the media about the tax gap being £120bn or Amazon avoiding tax by stuffing cash in the bodies of freshly slaughtered baby seals then the accountancy profession ought to be at least issuing a press release setting out the truth.

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Morph
By kevinringer
16th Sep 2019 13:47

It's only a partial victory because it is only postponed. The scheme is far too complex for small businesses. I had spoken to a number of my contractor and subcontractor clients and none of them could understand the rules. The main problem is that currently only contractors need to apply CIS and the subbie makes sure he gets his CIS tax voucher. Under the reverse charge the subbie needs to understand when CIS applies and doesn't apply, and whether the customer is an 'end user' and other rules. That's too much for small businesses. What's the point? HMRC already receive CIS data and can double check with the VAT data if they wish. HMRC just needs to make more intelligent use of data it already holds. There's no need for these complex rules.

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