Why the Domestic Reverse Charge was delayed

After concerns about a significant change to how construction companies manage payments, the government has delayed implementation by one year.

The Domestic Reverse Charge (DRC) was due to be introduced on the 1 October 2019. A major change, it would have meant that VAT payments would need to be paid directly to HMRC (read more about what the Domestic Reverse Charge involves here).

It was designed to combat fraud, with an estimated £100m lost by HMRC each year because traders failed to pay VAT on goods.

Construction

Posted 17/10/2019

Why the Domestic Reverse Charge was delayed

Many industry bodies and construction companies argued that there had not been enough time to prepare for the changes, particularly as they would make such as large difference to invoicing procedures, cashflow and financial management.

The lobbying was successful, with the introduction postponed. However, HMRC has reiterated its commitment to making the changes in 2020. In its statement, HMRC said that it will use the extra time to:

Use compliance related tools to tackle fraud in the construction sector
Raise further awareness within the industry and introduce additional guidance to prepare companies for the changes

HMRC also noted that some companies had already prepared for the changes and had made changes to their invoicing systems.

It said: "Some businesses will have already changed their invoices to meet the needs of the reverse charge and cannot easily change them back in time. Where genuine errors have occurred, HMRC will take into account the fact that the implementation date has changed."

Companies should now use the extra time to effectively prepare. For our thoughts on how to do this, read our blog: The Domestic Reverse Charge – a new method for collecting VAT in the construction industry.