The UK Government is to delay the introduction of VAT Reverse Charging for construction companies by a year after a coalition of trade bodies and organisations highlighted its potentially damaging consequences.
Reverse charge VAT was due to come into force from 1st October 2019 but the government last week announced its decision to delay implementation until 1st October 2020.
The move follows a joint letter sent last month to Chancellor Sajid Javid, where the Building Engineering Services Association (BESA) and other key industry bodies, led by the Federation of Master Builders (FMB), pressed the government to delay the VAT changes due to the damaging impact policy would have on the sector.
Brian Berry, chief executive of the FMB, said the delay is a victory for common sense. He added: “I’m pleased that the government has made this sensible and pragmatic decision to delay reverse charge VAT until a time when it will have less of a negative impact on the tens of thousands of construction companies across the UK. To plough on with the October 2019 implementation could have been disastrous given that the changes were due to be made just before the UK is expected to leave the EU, quite possibly on ‘no-deal’ terms.
“The situation hasn’t been helped by the poor communication and guidance produced by HMRC. Despite the best efforts of construction trade associations to communicate the changes to their members, it’s concerning that so few employers have even heard of reverse charge VAT.”
Data published by the trade body in July revealed that more than two-thirds of construction firms had not heard of the VAT changes and of those who had, around the same number hadn’t prepared.
Mr Berry said: “It is reassuring that the government has listened to the construction industry, which has come together to make clear to the government that sticking to the October 2019 timetable could lead to a loss of productivity, reduced cash flow and in the worst cases, lead to a hit on jobs, tipping some companies over the edge.
“What’s required now is for the government and industry to work together to deliver a sector-wide communications campaign, which must include plain English guidance on the changes. We also want to work with the government to deliver workshops aimed at construction employers, held in locations across the country, to explain what’s happening and why.”
T Bathgate MBA
Broadthunder Accounting Limited