Business and industry groups have jointly called on the Government to delay the implementation of the domestic reverse charge (referred to as the reverse charge), which is a major change to the way VAT is collected in the building and construction industry.
The reverse charge, which comes into effect on 1 October 2019, will mean that the customer receiving construction services will have to pay the VAT due to HM Revenue & Customs (HMRC) instead of paying the supplier.
The measure has been introduced to combat fraud in the building and construction area, and it will have a big effect on the accounting systems of those affected.
Last month, a coalition of construction associations made a joint submission to chancellor Sajid Javid outlining why he should postpone the introduction of the new VAT system from 1 October 2019 to April 2020.
Their statement said that they believe reverse charge VAT will have a significant negative economic impact on the industry, substantially increasing the burden on business and restricting cashflow.
They added that the timing of these changes could not be worse given they are due to take place just before the UK is expected to leave the EU, quite possibly on ‘no-deal’ terms.
Commenting on the statement, a spokesman for the Confederation of British Industry (CBI) said that the construction sector includes many difficult-to-reach micro and small businesses, and recent research shows that despite best efforts to communicate the changes, seven out of 10 firms affected are entirely unprepared for the introduction of domestic reverse charge.
He added that directly or indirectly, the impact will be felt by construction businesses of every size, so HMRC should consider pausing the implementation of domestic reverse charge to address the industry’s significant concerns.