A major change to the way that VAT is paid on building and construction invoices has been delayed again, this time until 1 March 2021.

At the end of May, HMRC said that the domestic reverse charge rules for the construction industry would commence on 1 October 2020. However, a week later, the tax authority confirmed that this would be pushed back by five months, due to the impact of the coronavirus pandemic on the sector.

This delay follows an earlier deferral from 1 October 2019. This deadline was pushed back by 12 months after industry bodies and accounting specialists raised concerns about a lack of preparation and the impact on businesses.

Billed as a solution to VAT fraud in the construction sector, the reverse charge rule change means that customers receiving a construction service will pay the VAT directly to HMRC, rather than the supplier, if they report it under the Construction Industry Scheme (CIS).

In a separate amendment to the legislation, businesses that are excluded from the reverse charge because they are end users or intermediary suppliers must inform sub-contractors of this in writing. This additional amendment is designed to make any exclusion clear for both parties.

HMRC says that it will devote extra resources to identifying and tackling VAT fraud in construction supply chains before the 2021 introduction date.

Miles Grady, Director of Umbrella.co.uk, said: “Another delay makes sense given the circumstances surrounding the industry at present. The future is uncertain for many construction firms and some are only just getting back to work after lockdown.

“The reverse charge VAT policy will have a significant impact on cashflow, which could hurt small and medium sized contractors hardest at a time when we need to protect jobs. The industry has been given a vital lifeline, now it’s up to them to make the most of it.”

For more information about the reverse VAT charge, speak to a member of the Umbrella.co.uk team. Call: 01625 546610.