{"id":62354,"date":"2019-08-30T10:18:16","date_gmt":"2019-08-30T09:18:16","guid":{"rendered":"https:\/\/www.pbctoday.co.uk\/news\/?p=62354"},"modified":"2019-10-17T11:49:13","modified_gmt":"2019-10-17T10:49:13","slug":"drc-construction","status":"publish","type":"post","link":"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/drc-construction\/62354\/","title":{"rendered":"Are you ready for the new construction industry VAT rules?"},"content":{"rendered":"<h2>Stuart Crook, partner at accountancy firm <a href=\"http:\/\/www.wellersaccountants.co.uk\">Wellers<\/a>, talks to us about the domestic reverse charge (DRC) rule coming into effect from 1 October 2020 and looks at how prepared the construction industry is for these changes<\/h2>\n<p>In its simplest form, the introduction of the domestic reverse charge rule means that contractors are liable for accounting directly to HMRC for any VAT due on certain building services, rather than the subcontractor. This will include reporting on the notional DRC tax as well as the VAT charged to customers.<\/p>\n<p>The <a href=\"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/changes-to-vat\/61078\/\" target=\"_blank\" rel=\"noopener noreferrer\">reverse charge<\/a> is being implemented to prevent fraud within the construction sector \u2013 particularly instances where subcontractors issue sales invoices, which include 20% VAT, and then disappear or fold without paying the VAT due to HMRC.<\/p>\n<p>When you combine this new operating method with the recent enforcement of the HMRC\u2019s \u2018<a href=\"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/making-tax-digital\/61402\/\" target=\"_blank\" rel=\"noopener noreferrer\">Making Tax Digital<\/a>\u2019, it is a particularly hectic administrative time for construction businesses, especially those that have been more reactive than proactive to the new regulations.<\/p>\n<h3>Are you prepared for the domestic reverse charge?<\/h3>\n<p>If this is the first you have heard about the reverse charge, or you are feeling woefully unprepared for the 1 October 2020 deadline, don\u2019t worry. You are certainly not alone. According to research released by the Federation of Master Builders in July, nearly seven in 10 (69%) of construction SMEs have not even heard of domestic reverse charge. On top of this, of those that have, more than two thirds (67%) are not prepared for the changes.<\/p>\n<p>What perhaps many people don\u2019t know is that the deadline for this implementation was due to be 1\u00a0October this year. There were many industry calls for the deadline to be pushed back, as this timeframe seemed unfeasible and unrealistic. Indeed, a coalition of the major trade bodies in the sector sent an <a href=\"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/reverse-charge-vat-delay\/61376\/\" target=\"_blank\" rel=\"noopener noreferrer\">open letter to Sajid Javid MP<\/a>, stating their worries. The letter discusses their \u2018serious concerns\u2019 regarding the reverse charge VAT and explores how it will substantially increase the burden on business and restrict cashflow. On the 6 September, HMRC listened to these calls, stating that the DRC would be delayed by 12 months.<\/p>\n<p>This means that the current rules are in effect until 2020, which with the UK due to leave the EU on 31 October, with a possible no-deal, make the decision rather timely for many. However, I would suggest that people don\u2019t let this delay any preparations they were putting in place. It is better to be prepared for 1\u00a0October 2020 now, rather than rushing to comply when the rules come into play.<\/p>\n<h3>What are the impacts?<\/h3>\n<p>The impacts of the domestic reverse charge will be felt by subcontractors, contractors and their customers, each presenting their own unique set of challenges.<\/p>\n<p>A major issue for subcontractors will be cashflow. The way some have operated historically is to use the VAT they charge to boost their cashflow\u00a0\u2013 making use of the time lag between when payment including VAT is received from the customer and when the VAT has to be paid over to HMRC. With these new regulations in place, the subcontractor will not be charging VAT to their customer (the main contractor) so they are going to have to adjust to having less readily available cashflow and therefore operate on a tighter budget while they adjust to the changes. The subcontractors will also need to change their invoices to reflect the DRC VAT that would have been due and maintain evidence of why they have applied this treatment.<\/p>\n<p>However, this move will benefit contractors in the short term, who by not paying VAT to their subcontractors, will no longer face long delays between paying VAT and recovering it. That said, contractors will need to make sure they are clued-up on the correct processes, for example checking that VAT invoices state if a service is subject to the DRC, or ensuring they are charging the correct amount of VAT for the work performed.<\/p>\n<p>For the customer, the onus is on them in terms of making the contractor aware of the VAT requirements on a particular project. If the work is subject to DRC, it is the \u2018end user\u2019s\u2019 who will have to confirm their status to make all parties aware through the transaction chain and pay the VAT.<\/p>\n<p>Once the fog has lifted, and people start to adapt and adjust to the new rules, it will soon become clear that some companies\u2019 accounting systems are increasingly underprepared for the DRC. Many businesses in the construction sector will have just implemented software to ensure the HMRC\u2019s \u2018Making Tax Digital\u2019 (MTD) is fully incorporated, so this new legislation has the potential to cause confusion as to whether the system is both MTD and DRC compliant.<\/p>\n<p>The trouble for these businesses is that when it comes to a tax return, if it is wrong, it is wrong. The HMRC will likely be light of touch with errors in the first six months, however after that it will review all its practices, going back as far as six years. This has the potential for big fines if there has been any negligence, no matter if it was on purpose or not.<\/p>\n<h3>Next steps\u2026<\/h3>\n<p>There is no doubt that with the introduction of the reverse charge rule businesses will need to modify their accounting systems, as well as consider how their cashflow will be affected.<\/p>\n<p>The best way for <a href=\"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/new-vat-rules-in-construction\/60610\/\" target=\"_blank\" rel=\"noopener noreferrer\">construction firms to prepare for the new DRC rules<\/a> is to be informed, know their responsibilities and contact their business advisor to clarify any concerns, as well as to set a plan in place.<\/p>\n<p><strong><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-62357 alignright\" src=\"https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-200x300.jpg\" alt=\"domestic reverse charge, construction,\" width=\"200\" height=\"300\" srcset=\"https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-200x300.jpg 200w, https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-768x1151.jpg 768w, https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-684x1024.jpg 684w, https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-696x1043.jpg 696w, https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-1068x1600.jpg 1068w, https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-280x420.jpg 280w, https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-1920x2876.jpg 1920w, https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules-610x914.jpg 610w, https:\/\/www.pbctoday.co.uk\/news\/wp-content\/uploads\/2019\/08\/Are-you-ready-for-the-new-construction-industry-VAT-rules.jpg 1335w\" sizes=\"auto, (max-width: 200px) 100vw, 200px\" \/>Stuart Crook<\/strong><\/p>\n<p>Partner<\/p>\n<p>Wellers<\/p>\n<p><a href=\"http:\/\/www.wellersaccountants.co.uk\" target=\"_blank\" rel=\"noopener noreferrer\">www.wellersaccountants.co.uk<\/a><\/p>\n<div class=\"mk-custom-module-container\">\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Stuart Crook, Partner at accountancy firm Wellers, talks to us about the domestic reverse charge (DRC) rule coming into effect from 1 October.<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[304],"tags":[676,664,283,276,18288],"stakeholder_rel_tag":[],"contributor_rel_tag":[],"class_list":{"0":"post-62354","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-planning-construction-news","7":"tag-construction","8":"tag-construction-services","9":"tag-finance","10":"tag-government","11":"tag-hmrc"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v26.9) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Are you ready for the new construction industry VAT rules?<\/title>\n<meta name=\"description\" content=\"Stuart Crook, Partner at accountancy firm Wellers, talks to us about the domestic reverse charge and looks at how prepared the construction industry is\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/drc-construction\/62354\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Are you ready for the new construction industry VAT rules?\" \/>\n<meta property=\"og:description\" content=\"Stuart Crook, Partner at accountancy firm Wellers, talks to us about the domestic reverse charge (DRC) rule coming into effect from 1 October and looks at how prepared the construction industry is for these changes\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/drc-construction\/62354\/\" \/>\n<meta property=\"og:site_name\" content=\"Planning, Building &amp; 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