Eventually, we have a positive spin for the word "delay". The government has now delayed the introduction of the reverse charge for a period of 12 months.
The legislation in respect of the reverse charge is very much seen as an anti-fraud measure by radically changing accounting practices such that a main contractor has to account to HMRC for VAT as if the supply made by its sub-contractor was made by the main contractor. The process prevents subcontractors (and others further down the chain) from charging VAT and then not accounting for it to HMRC.
Whilst the government is planning to take action by publicising the changes to be brought about by the reverse charge with renewed vigour, with a revised implementation date now of 1 Oct 2020, the onus cannot just be on the government. Others must join in.
From a supply chain point of view, contractual clauses suggesting that the reverse charge applies where the services constitute construction operations may tick the (contractual) admin box, but what's in it for a main contractor to encourage it to do more?
Construction firms can hold money earmarked to be paid over to HMRC (as VAT) for a short period before paying it over. This often provides construction firms (especially smaller firms) much needed cash flow relief, and the fortunes of many are dependent on this. This goes to the heart of the sustainability agenda that many employers (and consequently main contractors) are paying particular attention to in respect of their supply chain's sustainability.
It is necessary therefore for businesses to also consider, discuss and determine measures to check the ability of their supply chain to deal with this accounting change, which can have an immense impact on the robustness of their supply chains.
"The situation hasn’t been helped by the poor communication and guidance produced by HMRC. According to research by the FMB published in July, more than two-thirds had not heard of the VAT changes and of those who had, around the same number hadn’t prepared.” He said it was now imperative the government and industry work together to deliver a sector-wide communications campaign, which "must include plain English guidance on the changes".