Major changes coming to VAT for construction firms
Andrew Dixon, commercial director of specialist finance at Aldermore | 08:59 Wednesday 24th July 2019 | 4
Significant changes are coming to the way VAT works in the construction industry that will have both administrative and cash flow impacts.
It’s essential that businesses and the brokers they work with are aware of the implications and prepare for the impacts.
Under ‘reverse charging’, which comes into effect from 1st October 2019, VAT-registered businesses within a supply chain in the construction industry will no longer charge or receive VAT between themselves. While they will still record VAT, they won’t actually pay it over or receive it from each other. Only where services are to the ‘end user’ in a chain — likely to be the developer or main contractor — will VAT be charged and paid over to HMRC.
The changes are designed to combat possible fraud and make the collection of VAT more efficient. HMRC should still receive the same overall amount of VAT as before, while reducing the chances of a firm owing VAT to HMRC going insolvent, and thus incurring a loss to the public purse.
There are a number of issues for firms, and the brokers who help and advise them, to think about:
- consider what changes are needed to billing and accounting systems
- analyse supplier and customer lists to assess which ones reverse charging will apply to
- identify which customers are ‘end users’ who will have to continue paying VAT to HMRC — it is advisable to gain confirmation in writing that they are an end user
- talk to an accountant or tax adviser about the new requirements
- assess the cash flow implications for the business, as they are likely to receive less VAT than before
The cash flow implications could be significant. Many building firms and subcontractors have become accustomed to receiving VAT, and indeed use it as a form of liquidity before they have to pay the monies owing to HMRC at the end of the quarter. This money will stop coming in from October. This will put pressure on some in the sector, smaller firms in particular.
Brokers may be well placed to raise awareness of the changes and help their clients assess the implications. Will any new financing be needed to help smooth them through the transition?
As a funder and champion of the construction industry, Aldermore can provide facilities to support firms with their cash flow needs.
In the meantime, it should be a priority for firms to familiarise themselves with the new regime.
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Starling Bank raises £30m to fund European expansion
Starling Bank has raised £30m from its latest funding round to accelerate its expansion into Europe...
five degrees plans to expand into North America
Fintech firm five degrees has revealed plans to expand its operations into North America...
How can specialist banks continue to embrace difference?
Everyone’s different — and with big banks not geared up to meet the specialist challenge, the opportunity for smaller lenders is clear. But as the market evolves, how do we keep up?...
Precise Mortgages adds capital raising to Help to Buy offering
Precise Mortgages has enhanced its Help to Buy offering through the addition of capital raising...
Unity Trust Bank and Triodos Bank funding package supports opening of new Surrey care centre
Unity Trust Bank has provided funding to the Whiteley Homes Trust for the delivery of the latter’s Eliza Palmer Care Hub in Whiteley Village, Surrey, which will positively impact as many as 500 vulnerable individuals...
Could the Spotify of banking be closer than we think?
Spotify cracked the music market wide open because it understood exactly how people wanted to use music; what will it take for banking to do the same?...
Arbuthnot Banking Group loan balances grow by 33%
Arbuthnot Banking Group has announced that its loan balances have grown by 33% compared with the previous year in its update on trading for the three months to 30th September 2019...
British Business Investments supports over 34,000 SMEs
British Business Investments has announced that it is supporting over 34,000 SMEs across the UK, an increase of 28% on the previous year...
A spotlight on BTL
At Investec Private Bank, we are seeing a continued demand for BTL mortgages with clients taking advantage of low interest rates to make their portfolios more efficient...
Tide names new chief technology officer
Tide has recruited Guy Duncan (pictured above) to its executive team as its new chief technology officer...
OakNorth Bank lends £650,000 to Casa Italia
OakNorth Bank has provided a £650,000 loan to Liverpool-based, 160-cover independent Italian restaurant Casa Italia...