Further delay for VAT Construction Reverse charge

5th June 2020

HMRC has further delayed the implementation of the VAT construction services reverse charge, which will now take effect from 1 March 2021, rather October of this year.. 

As many construction projects stopped due to the coronavirus pandemic, introducing the changes from October would have proved difficult for the sector.

This is the second time the new regime has been delayed. It was originally meant to start on 1 October 2019, but was put back a year due to industry concerns. The delay of a further five months makes the start date 1 March 2021.

For affected supplies, the supplier will not charge VAT on their sales invoice to another VAT registered contractor, even where the supplies would have been subject to VAT at 5% or 20%, and the contractor receiving the invoice will instead account for VAT on their VAT return using the “reverse charge” procedure.

Suppliers of affected services will need to decide whether or not their customer is an “end user” – VAT will continue to be charged as usual on all supplies to private individuals and also to business customers who will use the services themselves (for example repairs and maintenance to their own office building).

The eventual introduction of the reverse-charge regime will require revisions to agreements between customers and suppliers, updates to accounting systems (including invoicing procedures) and will impact on cashflow.

Amended legislation

In addition to the delay, the primary legislation will be amended to make it a requirement that firms wanting to be excluded from the reverse charge (because they are end users or intermediary suppliers) will have to inform their sub-contractors in writing that they are end users or intermediary suppliers.

Before the new start date, HMRC says it will continue to crackdown on existing perpetrators of fraud in the construction supply chain, and will further raise awareness and provide additional guidance to ensure all businesses are ready.


The Chartered Institute of Taxation welcomed the further delay in the regime's start and the change in the legislation. In particular, it commented:

"Activity in construction has dropped significantly due to COVID-19. It is likely that firms that have accessed emergency finance through Government-backed schemes will be diverting their profits to pay back these loans. They will therefore struggle to accumulate the working capital necessary to mitigate the impact on cashflow of reverse charge VAT. The impact on cashflow is especially problematic for firms purchasing high value materials that are VAT-rated, but delivering construction services subject to reverse charge VAT."

Further reference


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