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Government U-Turn On Contractor VAT Change

HMRC backed down this week. They apparently bowed to pressure from industry lobby groups and agreed to a U-turn on the VAT changes for the construction industry.

VAT Reverse Charge Extended

Before the about-face, contractors and sub-contractors were facing a radical change in the way they accounted for VAT on transactions between sub-contractors and their CIS registered customers. The change was scheduled for 1 October 2019. This deadline has now been deferred to 1 October 2020.

Why Has It Been Delayed?

Lobby groups were able to demonstrate that the construction industry is not renowned for its attention to “accounting” matters – were unprepared. Consequently, and barely three weeks before the 2019 deadline, HMRC backed down and agreed to postpone the changes for one year. Those of us with a jaundiced view of HMRC would probably assume that they have enough on their hands dealing with the far-reaching changes to the VAT and customs duty rules when, and if, we actually leave the EU. The so-called Brexit Effect.

CIS Client Already Switched?

But what about advisors and their CIS clients who had invested time and money in changing invoice formats and adapting accounting systems?

In their press release announcing the one year delay, HMRC has acknowledged that firms who have made changes will now need to reverse the process otherwise returns for VAT will be incorrect. Tongue-in-cheek, HMRC also conceded that they will be sympathetic to errors on returns that were created by transactions that were compliant with the VAT change, albeit a year too soon.

Will HMRC Compensate?

In reality, CIS firms that had made the changes – to run from 1 October 2019 – will now need to reverse these changes and moth-ball them until 1 October 2020; and they will have borne the costs of both. Should advisors be pursuing HMRC for compensation? Although HMRC has not made mistakes, they have requested contractors act – under the threat of penalties if they didn’t comply – and suffer the costs of those changes, and then be told to about-turn and face additional costs?

Do we sigh, roll-over and comply? Or do we dust off our notes and submit error and mistake claims against HMRC?

Posted by Laura Pearce, Mon 16th September 2019

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