- 15 Jan
Construction Sector VAT Disruption Looms
I noticed a recent post from Ultimate Finance warning of the potential disruption to 150,000 businesses within the construction sector, from the VAT "reverse charge" changes that are due to come into force from the 1st October 2020. Their article quotes research from FMB that shows that 2 out of 3 SMEs are not even aware of the change. Are you prepared for the change?
Construction VAT "Reverse Charge"
The reverse charge means that many building and construction firms will no longer receive 20% VAT from their customers when they pay. Instead their customers will be obliged to pay the VAT to HMRC, and report via the Construction Industry Scheme. The effects of this change are twofold. Firstly, systems will need to be updated to account for the change.
Secondly, construction companies will not be holding the 20% buffer within their bank accounts, prior to paying their VAT bills. This could be money that they currently rely upon to make up shortfalls in their cash flow. This could lead to a requirement for construction finance to replace the buffer.
How To Prepare
I have previously written in more details about the reverse charge VAT changes and how to prepare. The good news is that there are a number of funders that specifically address the UK construction sector, and funding can be put in place to plug the cash flow gap caused by this planned VAT change. As always, businesses are advised to act in advance, rather than waiting until the change comes into effect.
Putting in place funding can be quick, but in some cases it can take time - as there are a number of issues e.g. the requirement for bank waivers, the need to produce particular pieces of documentation etc. that can cause delays. For this reason, it is advisable to act now before the changes, so that your business is prepared, and you don't suffer cash flow issues following the reverse charge VAT change.