Upcoming VAT changes for the Construction Sector

On the 1st October 2019 major changes are due to effect the building sector and the way it accounts for VAT.

HMRC has been concerned about leakage in the VAT system and missing trader fraud for some time and this change is their solution to address these problems. The scale of the problem is likely to be in excess of £100M. The new construction scheme will be similar to the scheme that is in place for computer chips and mobile phones.

Under this reverse charge arrangement a main contractor will have to account for the VAT on the services of any sub-contractor. The main contractor accounts for the VAT itself through its own VAT return instead of paying the VAT to the sub-contractor.

Invoices will have to state that the service is subject to the domestic reverse charge.

It will mean that sub-contractors will not end up owing money for VAT to HMRC at the levels they have experienced over the last few years.

Whilst this may be good news for HMRC and HM Treasury it is likely to have a large impact on many SMEs in the supply chain. This will include businesses in the following specialised trade’s demolition, electricians, plumbing, M&E, groundworks, scaffolding and painting.

Initial calculations with one of our clients have revealed an increased working capital requirement of £400,000 from October 2019.

These increases will undoubtedly impact the working capital availability for many businesses, especially when the quarterly VAT bill is due. This is where Catalyst can support a wide range of SMEs with a simple 3 month loan designed especially for the provision of covering VAT commitments.

To find out how these imminent changes may affect your business , visit the gov.uk website – you can use the link below.

https://www.gov.uk/government/publications/vat-reverse-charge-for-building-and-construction-services/vat-reverse-charge-for-building-and-construction-services