The government has announced that it will delay the introduction of new rules on VAT that would’ve impacted providers of construction services.
It had been planned for the rules, referred to as the domestic reverse charge for construction service companies, to be brought in from October 1st 2019 but that introduction date has now been pushed back by 12 months.
Construction trade bodies, including the Federation of Master Builders (FMB), have welcomed the decision and suggested that it represents a common sense move, largely because so many companies are unprepared for the changes to the VAT system.
Indeed, there has been research carried out that appeared to indicate that a not inconsiderable number of construction sector companies could have been forced out of business and made insolvent if the reverse charge rules were introduced this year.
The FMB has criticised HMRC for offering “poor communication and guidance” on the issue to its members across the country.
Plus, the FMB’s chief executive Brian Berry has said that the changes to the VAT rules would have been badly timed if they had come into effect from October of this year because of the uncertainty around Brexit and the lack of clarity businesses currently have about what the UK’s future relationship with the EU will be.
In fact, Mr Berry said that implementing the reverse charge rules this year could have been “disastrous”, in part because of the situation with Brexit but also because so few construction sector companies are ready for the impact of the changes.
“Despite the best efforts of construction trade associations to communicate the changes to their members, it’s concerning that so few employers have even heard of reverse charge VAT,” Mr Berry said in a statement.
“Indeed, according to research by the FMB published in July, more than two-thirds had not heard of the VAT changes and of those who had, around the same number hadn’t prepared.”
HMRC has said that it fully intends to introduce the new rules relevant to building firms across the country in due course and indicated that it plans to focus additional resources on identifying perpetrators of VAT fraud within the construction industry.