Construction: a change for the diary

If you are VAT-registered and work in construction, take note. The VAT domestic reverse charge for building and construction services (DRC) was due to take effect from 1 October 2020, and you are likely to have had a letter from HMRC giving this as the start date. In view of Covid-19, the DRC has now been postponed until 1 March 2021.

The charge is a business to business measure, intended to combat missing trader fraud. It applies to VAT-registered businesses where payments have to be reported under the Construction Industry Scheme: not to consumers. In outline, it means that rather than the supplier accounting for VAT on specified building and construction services, the recipient does so.

The DRC is not a new tax: and it doesn't alter the VAT liability. But it does change the way VAT is collected, and has other significant consequences. As well as the new administrative nuts and bolts needed to put the scheme in place, it will also impact cash flow for firms which have hitherto benefited from handling output tax on their supplies.

If you have yet to gear up for the DRC, we recommend that you review the position now, looking at what it will mean for sales and purchases, and checking that relevant staff, accounting systems and software are ready. The latest information is here Note that a last-minute change means businesses who are 'end users' or 'intermediary suppliers' will have to confirm this to their subcontractors. If this affects you, we should be delighted to advise.