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what does the vat reverse charge really mean for you?.

What Does The VAT Reverse Charge Delay Really Mean For You?

Back in 2017, the government announced changes to VAT rules for contractors. The plan was to transfer collection responsibilities from the subcontractor to the client in order to limit fraud in construction supply chains.

Now things have changed. In light of Brexit and lobbying from many construction players, roll-out has been stalled until the 1st October 2020 – giving an extra year to prepare.

What does this mean for the sector? Let’s weigh up the pros and cons.

Pro – Construction firms have more time to plan

Communication around the original switch was poor. A large number of SMEs were not only underprepared, but in some cases unaware of the incoming changes. These firms would have faced difficulties or even risked insolvency should the legislation have been introduced from October 2019.

The delay gives firms an extra year to review their processes and make necessary improvements. For the time being, subcontractors will continue to collect and submit VAT to HMRC for any services delivered under the Construction Industry Scheme (CIS), preventing disruptions to cash flow and the smooth delivery of services.  

Con – Forward-thinking businesses take the brunt

However, the delay isn’t good news for businesses that have already prepared for the new VAT rules. They may have made significant changes to meet the needs of the reverse charge, such as switching to monthly returns.

Pushing back the deadline places a costly administrative burden on those that thought ahead – not to mention frustration at the fact that they spent time and money to prepare.

Pro – One less thing to think about

For everyone else, the delay is likely to bring a welcome sign of relief amidst recent Making Tax Digital changes and ongoing Brexit fears. Pushing back implementation allows more time to focus on shoring up overseas relationships.

Even if your reliance on overseas trade is limited, the reduced burden on operational processes allows more freedom to fuel growth ahead of EU exit disruption. Firms can pursue new work and onboard contractors without the burden of new VAT regulations.

Con – Fraud issues remain unchallenged

The whole point of the new regulation is to stop suppliers charging VAT, dissolving their companies, and keeping it for themselves. A year’s delay will keep the current system exposed to fraudsters, which in turn takes money away from the public purse.

Not only could this have a knock-on effect in terms of tenders and government contracts, it’s also bad news for transport, housing and other government investments. The reverse charge benefits everyone in the long run – the only issue lies around implementation.

Overall, the delay is a positive move for the sector. But change is still coming – and, in the run-up to October 2020 and far beyond, Build Space is ready to help perfect your hiring processes. Contact us at our London Bridge HQ – 0208 332 2727 / if you’re in need of a talent partner that’s in for the long haul.

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