Domestic reverse charge rears its head again

HMRC has announced a further delay to the way VAT is collected from 1st October to 1st March 2021

The domestic reverse charge means those at the top of the construction chain will charge and collect VAT while CIS registered suppliers and subcontractors will report the tax but not collect it.

The new measure could deliver a cash boost to the major contractors at the expense of the SMEs in their supply chains.

Hudson Contract welcomes the delay but warns that many subcontractors will be unable to fund the changes when they come into effect.

Ian Anfield, managing director, said: “The domestic reverse charge will have a huge impact on those firms working on VAT standard rated projects as subcontractors.

“They would no longer collect VAT but would have to pay it out to materials suppliers, temporary works suppliers, plant only suppliers and labour agencies.

“In an industry with high turnovers and low margins, many firms simply will not be able to fund these changes.”

HM Revenue and Customs was due to bring in the domestic reverse charge last autumn but it was postponed as a result of political and economic uncertainty.

 

A Hudson survey of 1,290 companies at the time found one in 10 firms said they would not be able to withstand the impact to their cash flow.

In its latest guidance, HMRC urges VAT-registered companies to prepare for the introduction date by checking how the reverse charge affects their operations, updating their accounting procedures accordingly and considering if the change will impact cashflow.

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