If you are VAT-registered and work in building and construction, take note. The introduction of the VAT domestic reverse charge, postponed for 12 months last October, has been put back again.
The Domestic Reverse Charge for building and construction services (DRC) was due to take effect from 1 October 2020. You are likely to have had a letter from HMRC giving this as the start date but, in light of the current situation with COVID-19, the DRC has now been postponed until 1 March 2021.
Find full details of the changes and how they will affect construction businesses here.
What is changing?
The Domestic Reverse Charge is a business-to-business measure, intended to combat missing trader fraud. It will apply to VAT-registered construction businesses where payments have to be reported under the Construction Industry Scheme. It is not applicable to consumers. In summary, it means that rather than the supplier accounting for VAT on specified building and construction services, the recipient will need to do so.
The DRC is not a new tax: and it does not alter the VAT liability. What it does change is the way VAT is collected, and this has other significant consequences. As well as the new administrative nuts and bolts needed to put the scheme in place, it will also impact cash flow for firms which previously benefited from handling output tax on their supplies.
If you have yet to gear up for the Domestic Reverse Charge, we recommend that you review what it will mean for your business as soon as possible. Consider how it will affect sales and purchases, and check that relevant staff, accounting systems and software are in place and ready.
The latest guidance can be found here.(Note that a last-minute change means businesses who are ‘end users’ or ‘intermediary suppliers’ will have to confirm this to their subcontractors.)