VAT reverse charge delayed
Government has conceded to industry calls to postpone the introduction of reverse charging VAT for one year. The new deadline will be 1st October 2020.
The decision follows a joint letter sent last month to Chancellor of the Exchequer Sajid Javid, where BESA. ECA and other key industry bodies, led by the Federation of Master Builders, pressed the Government to delay the VAT changes that were originally planned to begin 1 October 2019.
The Government’s Reverse Charge VAT plans mean that VAT-registered businesses no longer have to account for VAT. Instead, the customer will account for the VAT directly. The result is that suppliers would in effect have a cash shortfall of 20% on all work in the short term, even though it would have to be paid to HMRC eventually.
BESA CEO David Frise says: “This delay is a big win for our members. Thanks to the concerted advocacy efforts of the FMB, BESA, and other trade bodies, common sense has prevailed. If the Government had not delayed the changes, many SMEs would have been caught off guard, facing increased burden and restricted cash flows while simultaneously bracing for the serious disruptions caused by the UK’s planned withdrawal from the European Union on 31 October.”
Rob Driscoll, ECA director of Legal and Business, agrees: “This is very much a victory for industry, due to the efforts from ECA, FMB and others. Many businesses across the construction industry were evidently not ready for the initial deadline of 1st October 2019. Given the backlog of businesses requesting conversion from quarterly to monthly VAT returns, it seems neither were HMRC.
“Introducing the new VAT rules now, compounded by Brexit uncertainty, could have seriously overburdened businesses and sent many over the edge. This new deadline affords the sector, and SMEs especially, much needed extra breathing space to prepare.”
The delay gives business more time to plan a smooth transition in the way that VAT is charged. However, Frise adds: “While these changes have been delayed, it is important to remember they will still come into effect next year. So businesses must use this extra time to make sure they are fully prepared.”
BESA members will continue to receive regular guidance through monthly tax bulletins as well as template letters and invoices the Association has prepared to inform their supply chains.