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It has been announced that, due to Brexit uncertainty, the proposed changes to reverse charge VAT will be delayed by a year, until 1 October 2020. The postponement has been welcomed by the construction industry, as there has been widespread concern over the lack of awareness of these changes and insufficient provisions of support for smaller businesses from the government.
Reverse VAT will have implications for your construction business. So we’re going to take a look at what this change means, how it will impact you and what you can do to prepare.
What is reverse charge VAT?
Essentially, this is a change to the way VAT is collected. A domestic reverse charge means there will be a shift from the UK supplier, to the UK customer who receives supplies of construction services, to account for the VAT due on their VAT return.
This change is being implemented by the government following on from the successful implementation of similar measures in other industries, as an anti-fraud precaution to protect the construction industry.
How will this affect businesses?
There will be an impact on cashflow – where businesses have previously received VAT payments from customers where reverse charge applies, this will no longer occur. Your company will need to account for these cashflow changes and prepare your finances accordingly.
New administrative systems will need to be implemented to deal with the changes that will need to be made when invoicing clients and paying taxes. Consider hiring in a construction specialist vat accountancy firm to ensure all necessary procedures and financial changes are adhered to.
What this means in the short term
If you’ve already prepared for the changes which were due on 1st October 2019, then you’ll likely have already changed your invoices to meet the new criteria. If you were not able to restore these in time, then HMRC have pledged to “take into account the fact that the implementation date has changed.” You may also have chosen to change to monthly VAT returns in anticipation of the impending VAT changes. This can be reversed on the HMRC website using the appropriate stagger option.
Otherwise, it will allow you a greater lead time to ready your businesses for the reverse VAT changes due now in autumn 2020, to prepare and implement necessary changes. The mention of VAT can be daunting, so it may be worth hiring in a specialist, such as an accountancy firm, to walk you through the process and guide you through what’s needed.