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Wise Up Wednesday: More Delay In VAT Rules Fiasco!

Yes, it’s a VAT Rules Fiasco! By now, I hope you know that the VAT rule change has been postponed for a further 12 months!

This was set to hit your cash flow due to the changes to the way VAT is collected in construction.

The changes were due to come into effect on 1 October 2019,but they have now been postponed until 1 October 2020.

HMRC was due to change the way it collects VAT from construction organisations and the new regime could easily have pushed small and medium-sized subcontractors into a cashflow crisis!

Note that this is only a postponement and not a reversal of the policy! Therefore you should prepare to make the change and can use the extra time wisely.vat rules fiasco

VAT RULES FIASCO! WHAT’S CHANGING?

Under normal circumstances, a subcontractor will charge the main contractor for work carried out, adding 20% VAT (nil rate or 5% applies in to certain projects).

Every quarter, the subcontractor declares the VAT, paying it back to HMRC. So far, so straightforward.

Under the new reverse charge VAT system from 1 October 2019, VAT cash will no longer flow between all businesses. With each business transaction, the VAT will be calculated as a paper exercise and registered on the invoice as a ‘reverse charge’.

Only client-facing organisations at the top of the construction supply chain (Main Contractors on all major projects) will be required to pay the tax.

As a general rule of thumb, any company that is registered with the Construction Industry Scheme (CIS) will fall into the reverse charge category. Any company that is invoicing a client that is not CIS-registered must charge VAT.

HOW WILL THIS AFFECT YOU?

This VAT rules fiasco has several major implications for you and your cash flow:

  • you will still be paying VAT to your suppliers, labour agencies and some subcontractors but NOT collecting it from the Contractor
  • your cash flow will be hit until the end of each VAT accounting period
  • you will no longer be able to rely on VAT money for cashflow
  • the onus will fall on major Contractors to pay very large sums of money to the exchequer
  • the whole of industry will need to get to grips with a new accounting system, or risk fines
    the potential for confusion and manipulation is enormous

WHAT CAN YOU DO ABOUT IT?

It’s clear from this postponement that we can’t stop it from happening that’s for sure!

So, the best thing every Specialist Contractor, Trade Contractor and Subcontractor can do is to ensure that they are fully conversant with the new regime, and to plan for any cash-flow shortfall that it is undoubtedly going to create.

And remember that if you need any help to resolve any kind of payment problem, including how to deal with the new VAT rules, please don’t hesitate to pick up the phone, take action and give us a call on 01773 712116.

You will be pleased to know that we are helping Specialist Contractors just like you to resolve problems every day of the week. We have the specialist resources to support your business and ensure you protect your financial interests. If you would like a free no obligation chat, please call us on 01773 712116 or email via this link.

Read more about VAT for construction industry businesses here.


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