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VAT domestic reverse charge- chaos for the construction industry.

5 March 2021
Mark Friend
Building & Construction, Reducing Tax, Accounting & Compliance, Property Investors & Developers

The long delayed VAT Domestic Reverse Charge for the Construction Industry was finally introduced on 1st March 2021.

The changes are far reaching to the construction industry and in these difficult times it’s amazing how many small businesses are still unaware of the changes and how many large companies are taking a flippant approach to the changes and are insistent that subcontractors apply the reverse charge even when the work undertaken clearly falls outside the construction industry scheme.

The lack of knowledge in the construction industry and the lack of clarity or support from HMRC will lead to numerous issues arising over the coming months. The Revenue have stated they will take a soft touch to compliance in the early days but the impact could be significant with incorrectly raised or disputed invoices.

The second big issue is off course cashflow! At a time when the Government has been focusing on protecting jobs and many contractors will be using the VAT deferment scheme to delay payment of their outstanding VAT liabilities from last year, it is staggering that HMRC are implementing the changes which will have a major impact on the cashflow of small and medium size subcontractor businesses which will directly impact on the viability of these businesses and thousands of jobs!

In our many blogs on the subject and our recent webinar which you can watch below we highlighted not only the new rules but also the cashflow impact for businesses.



There is no doubt there will be immense teething problems over the coming months so it is essential that:

  1. Businesses agree the correct treatment of invoices to avoid delays in payment.
  2. Where subcontractors are reverse charging invoices that they review the cashflow impact now and take the steps detailed in our webinar to minimise the impact. Above all they need to monitor cashflow closely, tighten credit control and ideally plan ahead over the next few months.

If you are a client of Friend & Grant and have concerns over the impact of the new VAT Domestic Reverse Charge then please contact your client manager. If you are not a client of Friend & Grant and need support then please contact us by telephoning us or completing the “Take the next step” form.

The content in this blog is correct as at 05/03/2021. See terms and conditions.

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