HMRC have announced that implementation of the VAT domestic reverse charge (DRC) rules for construction services has been pushed back by 12 months. The new rules, which were due to commence on 1 October 2019, have been delayed following representations from the construction industry and professional bodies.
In their Brief 10/2019, HMRC concede that the sector is not ready for these very significant changes, which would have come at a time when businesses are already dealing with the challenges of Brexit and Making Tax Digital. HMRC recognise that further guidance and support is needed to help businesses prepare and say they will ‘work closely with the sector’ to make sure that businesses are ready for 1 October 2020.
Last minute change of plan
Whilst this last minute change of plan is good news for many in the construction sector, it is disappointing that HMRC waited until the eleventh hour to make the announcement. Businesses that have invested time and money in preparing for the changes are likely to find that some of that work, such as staff training and reviewing contracts, needs to be repeated in preparation for the new start date.
Given the current political and economic uncertainty, it is difficult to predict whether the new rules will remain as drafted or whether we will see changes before 1 October 2020. For example, one area of the new rules which requires greater clarity is the important issue of identifying whether a customer has ‘end user’ status and exactly who is responsible for making that decision. It is hoped that HMRC will act quickly to provide improved guidance, support and publicity for the new rules, so that businesses can prepare with confidence.
How we can help
Menzies will continue to provide updates on the DRC over the coming months and will be running further seminars in the New Year. In the meantime, if you have any queries on this or any other VAT matters, please contact Sarah Barron below or your usual Menzies contact.