You may have read our blog that was publish last month, regarding the new VAT regime for the construction industry, as part of HMRC’s programme of combatting VAT fraud.
HMRC has confirmed it will put on hold plans to introduce reverse charge VAT in the construction industry for another 12 months.
Why have HMRC postponed this new reverse charge?
Many of the 150,000 businesses affected are yet to update their accounting systems to abide by the new VAT regime.
A recent survey undertaken by the Federation of Master Builders (FMB) in July found that more than two-thirds (69%) of SME construction firms were wholly unaware of the VAT reverse charge proposals.
Meanwhile 67% of those small construction firms that were aware of the proposals weren’t prepared for the changes, with the FMB warning the Government of probable ‘chaos’ if the new regime was to come into effect on 1st October 2019.
This has therefore led HMRC to defer the new regime until 1st October 2020.
What does this mean for you and your business?
Many businesses will breathe a sigh of relief. The extra time allowing them to prepare for these changes, will allow systems and procedures to be implimented to combat the impact on cashflow.
But it is still coming. HMRC remains committed to the introduction of the reverse charge, and will be introducing the reverse charge in October 2020.
What actions should be taken?
Although there is a deferral, actions will still need to be taken. As stated in our previous blog, construction businesses should:
- Review supplies made to and received from other VAT registered contractors to establish whether these will be subject to a reverse charge from 1st October 2020;
- Consider the adaptions that will need to be made to their accounting systems to deal with this change and;
- Consider the impact on their cash flow from 1st October 2020, and if there are any other ways to mitigate this impact.
Additionally, contact us to discuss how this is going to affect your business.
