By David Cairns
Hawsons Chartered Accountants
MANY construction firms have not given attention to an impending change in accounting for VAT within the sector, which has led to calls on HMRC to delay the change by six months.
Approximately 150,000 businesses will be affected by the new regulations which were due to come into effect this month but have now been delayed to October 2020.
The aim of the domestic reverse charge is to combat fraud in the sector.
Under the new regime, a VAT-registered business, which supplies particular construction services to another VAT-registered business for onward sale, will be not be required to account for VAT, but should issue an invoice stating that the service is subject to the domestic reverse charge.
The recipient of the supply must account for the VAT due on the supply through its VAT return, instead of paying VAT to the supplier. The recipient may also recover that VAT amount as input tax, subject to the normal rules for claiming credit. Unlike other types of reverse charge, the value of such reverse charge services will not count towards the VAT registration threshold.
Concerns have been expressed that publicity and communications by HMRC about this significant change have been insufficient.
Problems may occur for businesses in the early days of implementation which may lead to disputes between suppliers and customers as to whether or not VAT should be charged on invoices.
Similarly businesses may be unprepared for the cash flow implications of the reverse charge, which may have a more fundamental impact.
If you have any concerns relating to the reverse charge or any other aspect of your VAT affairs, get in touch with David Cairns at Hawsons on 01604 645600 or by email firstname.lastname@example.org