In a letter received today, the Government has set out that it remains committed to introducing the VAT domestic reverse charge for building and construction on the  1 March 2021.  The letter from the Rt Hon Jesse Norman MP, Financial Secretary to the Treasury states:

“The Government is determined to tackle VAT fraud in all its forms, and therefore remains committed to introducing the VAT domestic reverse charge for building and construction services on 1 March 2021. As you know, the reverse charge aims to remove the ability of fraudulent operators to collect VAT and then disappear without remitting the VAT to HMRC. The Government still believes it is necessary to bring in the reverse charge now to combat criminal attacks on the VAT system; another delay or cancellation at this stage would create further uncertainty and cost to businesses which have already spent a great deal of time preparing for the change.
The Government acknowledged in its response to the industry.”

FIS President Helen Tapper summed up the concerns from industry well in here recent statement as part of the #StopReverseVAT campaign:

“We are a £6m specialist fit-out business who works both for main contractors and directly for clients.  Setting aside admin, we anticipate the overall cash cost to the business will be around £175k, a scary number, but for some working exclusively as a sub-contractor, the impact will be far, far worse.  After the most harrowing 12 months we have known in our 35 year history where we have lost work, lost money on work, continue to get drawn into difficult contractual issues but have done all we can to carry on and do our bit, this will be a very difficult pill and not one all will be able to swallow.”

FIS CEO Iain McIlwee responded to the letter: “I am frankly appalled by the small thinking from Government, it just seems to me that good hard working businesses, that have carried the economy through the recent pandemic, risking health and having to draw on all reserves of resilience (not to mention cash reserves!) are being hammered because of HMRC’s inability to get on top of alleged VAT fraud.  The letter points to Government advice on reducing cashflow impacts, but it will not be enough for many – the numbers are eye watering.  It made sense to delay it last year, but there has been no meaningful review and the conditions in the market are wholly different to when the original consultation took place, not least because of the damage of the pandemic and Brexit slamming the door on immigration (which has in part addressed the issue of fraudulent operators to disappear).  If it made sense to delay last year, the case is even stronger, Government want us to build build build, but with what?  Construction relies on cash in the supply chain and they are taking vital cash out of the system and in the process will crippling businesses and constraining others from investing in innovation and growth.”