HMRC has announced a second delay to the introduction of the domestic reverse charge for construction sector due to the impact of the coronavirus.
The scheme was due to come in on 1 October 2020 have been delayed for a further 5 months until 1 March 2021.
The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.
From 1 March 2021, sub-contractors will no longer add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge.
Please note!! Contractors will be responsible for paying the deemed output tax, on their VAT return they can usually claim back the same amount as input VAT.
The new rules were originally expected to come into force from 1 October 2019. The initial 12 month delay was announced following intense lobbying by the construction industry who had argued that many businesses in the sector were unprepared for the change. HMRC have confirmed, that even with this additional delay, they remain committed to the implementation of the Domestic Reverse Charge.
There will also be an amendment to the original legislation, which was laid in April 2019, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers.