HMRC has announced a one-year delay to the implementation of the Value Added Tax (VAT) reverse charge until 1 October 2020 after “industry representative raised concerns” about the move.

In June, the government published guidance about the so-called reverse charge on the way VAT is collected in the building and construction industry. The changes were due to come into effect on 1st October and would have seen the customer receiving the services having to pay the VAT due to HMRC instead of paying the supplier – meaning companies would no longer receive their 20% VAT payment when they submit their bills.

But the government has now confirmed these changes will not come in until 1 October 2020. The reverse charge will prevent suppliers of construction services receiving VAT payments from their clients, with responsibility for handing over VAT due on payments shifting from supplier to client.

Responding to the development, Federation of Small Businesses (FSB) National Chairman Mike Cherry, said “The Government has today shown it is listening to the small business community following our direct engagement with policymakers. With small construction businesses already suffering due to unprecedented uncertainty, slowing growth and rising costs, this was clearly not the right moment to hit them with the reverse charge.”

“Small firms in this sector are already disproportionately impacted by late payments. Roll-out of this change without due care will make a bad situation worse, restricting cashflow and threating the futures of many.”

“It’s also encouraging to see HMRC providing reassurances that those who’ve already changed invoice arrangements in preparation for the change will not be punished as a result of confusion following this late intervention.”

“The Government must now proceed with care. It would do well to remember that – while the UK does have a VAT tax gap – it is considerably narrower than a lot of other European countries, including the likes of Italy and France.”