Accountants urge government to delay VAT Domestic Reverse Charge

An audit, tax and consulting firm has joined the call for the UK Government to delay its proposed implementation of the VAT Domestic Reverse Charge due to the apparent lack of preparedness from within the industry.

Accountants urge government to delay VAT Domestic Reverse Charge

Jim Burberry

The VAT anti-evasion, which will target specific supplies within the construction sector, will be introduced on 1 October 2019.

However, the Federation of Master Builders (FMB) has found that two thirds (69%) of construction SMEs have not heard of the reverse charge; and of those, 67% have not prepared for the changes.

Accountant RSM is now lending its voice to that of the FMB, along with the Chartered Institute of Taxation (CIOT), to call for a delay to the implementation date.

Jim Burberry, partner at RSM, said: “This new measure will have a profound impact on a construction business’s invoicing routine. Further, it will have a serious cashflow impact, most likely in the early stages of the supply chain, where contractors will no longer charge and collect VAT from their customers. This VAT cash can sometimes be used by businesses to fund working capital, before it’s paid over to HMRC via its VAT return.

“Whilst this measure is being brought in by HMRC to fight fraud, the rules apply to all in the industry. Failure to comply will risk delayed payments by customers and penalties from HMRC.

“Businesses should be reviewing their supply chain now to get ready for the changes which is just over a month away. Better still, we would urge the gGovernment to consider delaying the implementation date to allow the sector a chance to properly prepare.”

RSM said the aim of the VAT Domestic Reserve Charge is to reduce the amount of VAT fraud in the construction industry, by asking customers to self-account for the VAT due on a supply subject to VAT at a standard or reduced rate, rather than it being charged by the supplier. In general, only invoices issued for construction services supplied to an ‘end user’, that is a business that will not make an onward supply of construction services, are excluded from the scheme and subject to existing VAT accounting rules.

Although the concept of a customer self-accounting for the VAT due on a supply may seem straight-forward, the question of ‘when’ and ‘how’ adds to the complexity. A supplier, and a customer, need to consider and apply all the relevant rules under this new measure.

HMRC is promising a ‘light touch’ on the introduction of the VAT Domestic Reverse Charge on compliance failures for the first six months following implementation on 1 October 2019, provided that HMRC feels that the taxpayer has attempted to follow the new rules. What will be considered by HMRC as enough weight of evidence that an attempt by the business concerned has been made to follow the new rules, is not clear.

FMB’s findings suggest that the construction industry is not yet ready for these changes. Now, with the CIOT also raising its concerns as well, and urging the government to postpone the introduction of these changes until 1 April 2020.

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