The government has announced a further five-month delay to the introduction of the domestic reverse VAT charge for construction services due to the impact of coronavirus.
The reverse charge was originally due to come into force on 1 October 2019, but was then pushed back until 1 October 2020. HMRC have now confirmed that the measure is being postponed until 1 March 2021.
A reverse-charge system requires a VAT-registered customer to account for the VAT due when buying certain services from its suppliers. The customer pays the VAT due to HMRC by making an adjustment to its VAT return rather than paying the VAT to the supplier.
The introduction of the reverse-charge system will mean changes to agreements between customers and suppliers, updates to accounting systems (including invoicing methods) and will impact on the business’ cashflow. Given that many construction projects came to a halt as a result of the coronavirus pandemic, introducing the changes from October would have come at a difficult time.