HMRC were due to introduce a major change to the way that VAT works in the construction industry on 1 October this year. The idea was that subcontractors would no longer charge VAT on the work they did – instead, VAT would be dealt with solely by the main contractor. The change was motivated because of subcontractors charging VAT to contractors, but then failing to pass the VAT on to HMRC.
Lots of businesses in the construction industry had committed a lot of time and effort in getting set up for the changes. VAT consultants and lecturers had been running seminars and issuing guidance on the subject, and HMRC had run a series of webinars. Some construction subcontractors had applied to switch from submitting quarterly VAT returns to submitting monthly ones, realising that they were now going to be getting a repayment each time they submitted a VAT return and that monthly returns would therefore help their cashflow.
HMRC postponed the introduction of the new rules at the last minute in September, citing lack of preparation by businesses in the industry. The changes will now be brought in on 1 October 2020. In the meantime it’s business as usual, so contractors and subcontractors must continue to account for VAT in the normal way. The preparation many have done will have to be rolled back and their knowledge refreshed next year. The smart, organised subcontractors who applied to switch from quarterly to monthly returns actually find themselves in a worse cashflow position for a year, not a better one, unless they apply to go back to quarterly returns again.
Obviously postponing rules changes with three weeks' notice is ludicrous, and the businesses that weren't prepared will be absolutely no more prepared in 12 months' time. It's hard enough to run a business as it is without the government actively wasting the time of the businesses that are paying attention and trying to get things right. Hopefully this won't set a precedent - especially because very often businesses fail to prepare for a change in the hope that it will be delayed or cancelled. This just makes that (usually futile) hope more alluring.
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