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UK Government agrees to postpone introduction of VAT reverse charging scheme

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The UK Government has announced that it is to further delay the introduction of the VAT reverse charging scheme until March 1, 2021. 

Rishi Sunak, the Chancellor of the Exchequer, made the decision to further delay the introduction of the VAT reverse charging scheme due to the ongoing impact of the Covid-19 pandemic. The scheme was set to come into effect on October 1, 2020, having been delayed by one year back in September 2019. 

SELECT, the campaigning trade organisation for Scotland’s electrotechnical industry, has welcomed the UK Government’s further postponement of the planned VAT reverse charge scheme.

Fearing a negative impact on the industry, SELECT and other UK trade bodies, led by the FMB, had written to Sunak asking for a further postponement. The UK Government has now decided that the economic dislocation caused by the lockdown justifies a further six-month delay.

Alan Wilson, managing director of SELECT, said: “If the changes had been implemented they would have further increased the burden on construction employers and seriously restricted cash flow.

“A further six months’ delay will at least give SELECT member businesses and other companies in the construction sector the breathing space they need to recover from the lockdown and alter their systems and processes.”

VAT reverse charging means that businesses which are both VAT and Construction Industry Scheme registered will no longer pay VAT to most of their subcontractors.

Instead, VAT will only be paid to firms which supply only labour (employment businesses) and to the merchants and businesses that sell building materials only without any fix.

SELECT’s Director of Finance and Resources and Association Secretary, John McGhee, said: “The very idea that, in just under four months from now, the VAT reverse charging scheme would come into effect could easily have been the last straw for many of our members.

“But credit where it is due: the UK Government is to be congratulated for having the foresight to push the changes into next year by which time, we hope, some semblance of normal business will have been restored.”

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