How will the October VAT change affect the construction industry?

Construction workers are calling upon chancellor Sajid Javid to delay VAT changes which many say will cripple firms’ cashflows this autumn.

In June, the government published guidance about the so-called reverse charge on the way VAT is collected in the building and construction industry.

It comes into effect on 1 October and will see the customer receiving the services having to pay the VAT due to HMRC instead of paying the supplier – meaning companies will no longer receive their 20% VAT payment when they submit their bills.

HMRC said it has introduced the change to crack down on companies charging and collecting VAT payments before disappearing and owing the taxman.

But critics say the new rules will hit firms’ cashflows and push many into the red as they struggle to keep up with payments to HMRC.

Last week 15 trade bodies, including the Federation of Master Builders, the Federation of Small Businesses and the Civil Engineering Contractors Association (CECA), wrote to Javid asking him to push back the changes by at least six months.

The British Constructional Steelwork Association said firms with a turnover of £15m could be hit with a negative cashflow of £262,500 by month three of the charge.

“This could be the end for many subcontractors who are already experiencing late payment, difficulties in agreeing final payment amounts,” said the group’s director-general Sarah McCann-Bartlett.

CECA chief executive Alasdair Reisner said: “Civil engineering contractors are extremely worried about the impact of the forthcoming new rules on their immediate cashflow and the impact that this will have on business sustainability. Small contractors do not have the resources to manage the immediate impact of the legislation change.”

In its June guidance, HMRC admitted: “HMRC understands that implementing the reverse charge may cause some difficulties.”

But it told firms: “[We] will apply a light touch in dealing with any errors made in the first six months of the new legislation, as long as you are trying to comply with the new legislation and have acted in good faith.”

For information on the changes and what you need to know, please click here

Source: building.co.uk