Domestic reverse charge VAT for construction services – delay in implementation announced

Following pressure from the industry (including a letter signed by FIS in the Telegraph last weekend). HMRC have announced that the introduction of the domestic reverse charge for construction services will be delayed for a period of 5 months from 1 October 2020 until 1 March 2021.

A domestic reverse charge means the UK customer who gets supplies of construction services must account for the VAT due on these supplies on their VAT return, rather than the UK supplier. This removes the scope for fraudsters to steal the VAT due to HMRC and follows similar measures introduced in response to criminal threats for mobile telephones, computer chips, emissions allowances, gas and electricity, telecommunication services and renewable energy certificates.

The domestic reverse charge for building and construction services was originally planned to come into force on 1 October 2019, but it has already been delayed for a year in response to industry concerns.

In a statement published to day HMRC have reported: “To help these businesses overcome the effects that the coronavirus pandemic has had on them and give them more time to prepare, the introduction of the reverse charge has been delayed for a period of 5 months until 1 March 2021.”

In this statement they go on to report that HMRC remains committed to the introduction of the reverse charge and has put in place a robust compliance strategy for tackling fraud in the construction sector using tried and tested compliance tools.

In the intervening period, HMRC will continue to focus additional resource on identifying and tackling existing perpetrators of the fraud. It will also work closely with the sector to raise awareness and provide additional guidance and support to make sure all businesses will be ready for the new implementation date. The additional amendment to require end users and intermediary suppliers to notify their sub-contractors of their end user or intermediary supplier status in writing is designed to make sure both parties are clear whether the supply is excluded from the reverse charge. It reflects recommended advice published in HMRC guidance and brings certainty for sub-contractors as to the correct treatment for their supplies. If followed, it will remove a concern that HMRC may seek to challenge the reverse charge treatment where a business that qualified as an end user or intermediary supplier had not given any notification of their status.

In response to this statement Iain McIlwee, CEO of Finishes and Interiors Sector stated “On the one hand it is good news we have a delay, but I am still baffled by the unblinking need to carry on regardless. For me HMRC have found a way to solve a problem that just shifts burden away from HMRC and onto industry, create new admin and uncertainty. Government must realise that cashflow is critical in construction, whenever this is introduced it creates an air bubble for specialists – simply kicking the can down the road doesn’t make this go away. Draconian tax measures are not what is needed right now, we need to be learning from the COVID response and the successes and failures of schemes like CBILS in conjunction with procurement practices that support liquidity – if we don’t get this in place many more businesses will fail and Reverse Charge VAT may well be the tipping point”.

You can read in full the Revenue and Customs Brief 7 (2020): domestic reverse charge VAT for construction services – delay in implementation here

To access The FIS Implementing Reverse Charge VAT Toolkit – click here

Building owners can now register their interest for the £1 billion Building Safety Fund for the remediation of unsafe non‐Aluminium Composite Material (ACM) cladding. The deadline for registering interest is 31 July 2020 and anyone that goes on to apply for funding would be expected to start construction work on site before 31 March 2021. 

This fund, which is in addition to the £600 million fund for the remediation of ACM cladding, applies to residential buildings over 18 metres in both the private and social sectors and has been designed to address some of the financial obstacles to remediation being carried out quickly.

Information about the specific systems that are eligible for the fund can be found in Annex A to the fund prospectus. Funds will be allocated on a ‘first come, first served’ basis and there is no limit on the amount that individual building owners can apply for.

On 24 May the Prime Minister announced that secondary schools could provide some contact for Year 10 and Year 12 students to help them prepare for exams next year, with a quarter of these students in at any point.  For further education (FE) settings (including general further education colleges, sixth form colleges, and other providers) the equivalent approach applies and FE settings should plan on the basis that from the week commencing 15 June, they can broaden the number of 16 to 19 learners (equivalent to Y10/Y12 in schools and sixth forms) attending on site delivery.

Covid-19 Education and skills training provision further education providers

Government is developing a new Building Safety Programme to address the points raised by Dame Judith Hackitt following the tragic disaster at Grenfell Tower, and they are engaging with the sector through the Construction Products Association (CPA).

The Ministry of Housing, Communities and Local Government (MHCLG) are looking at what structure needs to be put in place around products that are considered safety crucial, and in our sector these include: SFS, drylining, partitioning and fire doors, and fire door sets.

FIS has responded to the recent survey to identify products, systems and issues likely to impact its members and requested to be able to represent the sector during the development of any new process and standards using the responses received by our members.

We will keep you informed of developments as we hear them. Meanwhile the response can be seen here.

Construction Products Testing Workshops

Following the results of the above survey, CPA is organising a series of online workshops, which will be held on the 9 and 11 of June. There will be four two hour sessions, each focusing on a different theme.  If you would like to take park, please register for tickets based on your availability to attend, this will enable CPA to provide you with more information on each session as this becomes available. More details on the workshops will be released closer to the date, but please register your interest through CPA Eventbrite page so that a place can be reserved. 

Total construction output in Great Britain is expected to fall by 25% during 2020, according to the Construction Products Association. The anticipated decline in output is one of three scenarios for construction output examined by the CPA. Even under this most optimistic of scenarios, the country’s construction activity would suffer its sharpest fall ever recorded. The pause to construction work as a result of Covid-19 social distancing measures is the main cause of the fall, with 60% of planned construction output lost in April due to the measures.