Government postpones VAT changes for the construction industry

The government has delayed the implementation of VAT changes for the construction industry for the third time, due to concerns about the impact of Coronavirus on the sector. 

The changes, referred to as domestic reverse charge VAT for construction services, have already been postponed twice, having originally been planned for October 2019 and then October 2020. 

HMRC have now announced that the changes will be further delayed until 1st March 2021.

Once introduced, the VAT changes will generally make contractors responsible for accounting for VAT when they receive certain construction services. Their subcontractors in the construction supply chain will no longer charge 20% VAT when they submit their bills. Instead, VAT will be dealt with by the contractor. There are of course exceptions to this, and those in the construction industry should ensure that they understand the new rules. 

The news will come as a relief to those in the sector. Brian Berry, chief executive of the Federation of Master Builders, was among many calling for a year-long delay before HMRC’s latest announcement, saying: “SME builders are safely returning to work, but important social distancing measures on sites are understandably hampering productivity. That this is having an impact on cashflow means it’s essential that the government delays its introduction of reverse charge VAT by at least one year.” 

“This disruptive tax change risks hitting SMEs the hardest at a time when we need to protect jobs and livelihoods. Delaying this policy would acknowledge that SMEs provide the bedrock of the industry and help support the recovery of the construction sector.” 

Despite the delays, HMRC state that they remain committed to bringing these rules in, claiming that these measures will help prevent fraudulent activity in the sector. 

HMRC’s brief is available to read here. To be kept up to date with the latest VAT news, register for our newsletter here.

Date published 5 Jun 2020 | Last updated 18 Nov 2020