Chancellor urged to delay construction VAT change “chaos”

Chancellor Sajid Javid is being urged to postpone VAT changes which could cause a cash-flow crisis across construction.

More than 150,000 construction companies are facing a 20% drop in cash flow when planned VAT changes come into force in October.

The “domestic reverse charge” changes mean companies in the construction supply chain will no longer receive their 20% VAT payment when they submit bills.

The VAT cash will instead be paid direct to HMRC by the customer receiving the service who will reclaim it in the normal way.

Worried specialists have stated that the change will cause chaos across the industry.

The National Federation of Builders is among a group of trade bodies who have written to Javid today calling for the October 2019 introduction of domestic reverse charge VAT to be delayed until April 2020.

The NFB highlighted the effect the change will have on cashflow and administration costs for “an industry already facing increased material and labour costs.”

Richard Beresford, chief executive of the NFB said: “For an industry facing lighter workloads, increasing pressure on cash flow and an already high rate of insolvency, reverse charge VAT could not have come at a worse time.

“By delaying the introduction of this measure, the industry will have more time to properly prepare and make their businesses more resilient, and more detailed guidance can be provided to ensure a smooth introduction.”

Tax experts are also backing calls for a delay.

Linda Skilbeck, Vice-Chair of the Chartered Institute of Taxation Indirect Taxes Sub-committee, said: “We are concerned about the combination of a substantial lack of awareness, and lack of preparedness even among those businesses who are aware of the measures.

“We urge the Government to delay the current implementation date. A start date of 1 April 2020 is more appropriate.

“This should allow time for a dedicated information campaign to be operated by HMRC, with the assistance of industry and professional bodies.

“We believe there will be significant confusion among businesses in the early days of the change, undoubtedly leading to disputes between suppliers and customers as to whether or not VAT should be charged.

“Many businesses will ring HMRC’s phone lines, which will need to be adequately resourced and trained to deal with these queries. At the same time, businesses and HMRC will be dealing with the implementation of Making Tax Digital, as well as the consequences of Brexit.

“As noted in the policy paper, businesses may be unprepared for the cash flow implications of the reverse charge, potentially leading to financial difficulties and even insolvency in the worst cases, as well as significant levels of business disruption even among larger companies.”

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