Delay to VAT reverse charge announced by HMRC until October 2020

Further to the news earlier this year that Construction firms were likely to face a significant squeeze to their finances in October, with the implementation of the new Domestic Reverse Charge (DRC), HMRC has recently announced a one-year delay to the changes until 1 October 2020.

The proposals would have required customers to pay VAT directly to HMRC, rather than to suppliers, meaning that construction firms would potentially see a decrease in their income when the new rules came into force.

The delay follows concerns raised by the Federation of Master Builders (FMB) that 69% of their small and medium-sized members reported that they were not aware of the changes at all”, and of those who were aware, “67% do not have the necessary measures in place to ensure their business is ready.”

With many construction firms counting on VAT as part of their working capital, and with the apparent lack of awareness within the industry about the rule changes, the DRC would have hit some businesses quite hard and could have caused a spike in insolvencies within the sector.

In reaction to the news about the delay, Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), commented that it showed that the Government is “listening to the small business community following our direct engagement with policymakers.”

He also said it was encouraging to see that those who had already updated their invoice arrangements to prepare for the changes “will not be punished” unfairly as a result of the delay.

With the news of this delay, directors of Construction firms can breathe a sigh of relief, however it is still a good idea to have a plan in place in preparation for 1 October 2020, and there are a number of measures businesses can take to prepare.

Contacting Bretts Business Recovery (BBR), your accountant or other professional advisers will help ensure your firm can plan ahead, and is therefore better prepared for the DRC.

If you are would like assistance or advice in planning for the DRC, and the financial implications it will have for your business, please contact BBR who can assist and advise you in preparing for the rule changes when they come into effect from 1st October 2020.