VAT cash-flow crisis looming for construction

Grant Prior 4 months ago
Share

Thousands of construction companies are facing a 20% drop in cash flow when VAT changes come into force in October.

Government experts believe 150,000 firms could be hit by the “reverse charge”.

The 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.

One worried specialist with a £50m turnover told the Enquirer: “We’ve estimated that for us as a tier two contractor this will have a negative impact on cash of £2.3m.

“If you are already running at the limit of lending and can’t get more money from your bank and HMRC just plough on as they usually do you could be screwed.

“Tier twos are already net providers of free credit to Tier one contractors and now we won’t be getting that VAT cash in from Tier ones.”

Neil Lancaster, Partner at accountancy and business advice firm Adams Moore said: “It is crucial for many businesses to acknowledge how this change may affect their cash flow due to the fact they will not receive VAT directly from the contractor.”

HMRC has introduced the change to combat “missing trader fraud” where companies charge and collect VAT payments then disappear owing the tax man.

Payroll companies were braced to be hit hard by the changes but they have now been granted an exemption.

HMRC said: “Employment businesses who supply staff and who are responsible for paying the temporary workers they supply, are not subject to the reverse charge.”

HMRC says you will have to apply the reverse charge if you supply any of these services:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours
  • pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • painting or decorating the inside or the external surfaces of any building or structure
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

The following services are not subject to the reverse charge:

  • drilling for, or extracting, oil or natural gas
  • extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
  • manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
  • manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
  • the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
  • making, installing and repairing art works such as sculptures, murals and other items that are purely artistic
  • signwriting and erecting, installing and repairing signboards and advertisements
  • installing seating, blinds and shutters
  • installing security systems, including burglar alarms, closed circuit television and public address systems

For full details of the reverse charge plans click here



 

Latest news

Muse clinches developer role on £650m Slough regeneration

North West Quadrant scheme involves building 1,400 homes, offices, retail and leisure in the heart of Slough
8 hours ago

Scape starts race for £1bn consultancy framework

Bids now invited for national four year deal
6 hours ago

London office starts slump by nearly half

Contractors use of non-UK labour in Capital falls from a third to a quarter of workforce
20 hours ago

Kier suffers shareholder revolt over chief’s pay

Almost 54% of shareholders vote against board pay
3 days ago

Cladding probe after Bolton student block blaze

Latest fire raises more questions over cladding
20 hours ago

Weston and Tesco submit plan to turn store site into 1,280 homes

Major mixed-use scheme planned for Goodmayes in East London
12 hours ago

Kingspan UK insulation sales fall 15%

Building products giant expects weak sales to continue next year
12 hours ago

Goldbeck lands £31m Gatwick car park deal

Latest win adds to recent successes in aviation sector
12 hours ago

String of M&E wins sees HE Simm touch £100m turnover

Repeat business for satisfied clients boosts results at specialist
12 hours ago

Interserve restructure paves way for possible break-up

Chief executive Debbie White to step down by end of December
4 days ago

Kier Chief Operating Officer leaves as cost cuts continue

Claudio Veritiero joins 1,200 staff set to go by next June
3 days ago

Eurovia trials robo-cars to ferry tools to highways sites

Driverless delivery vehicles will also survey road conditions as they go
4 days ago

PDR Construction starts Arco HQ in Hull

£16m project marks major milestone in £80m waterfront regeneration
4 days ago

Crossrail traffic marshall threatens passer-by and kids

Bond Street station subcontractor sacked after confrontation with public
4 days ago

Multiplex Europe chief Ashley Muldoon exits

Muldoon steps down after 22 years in top management shake-up
4 days ago

New-build housing completions top 200,000

Completions rise to the highest level since the 1980’s
4 days ago

Interserve chalks up 15th school project this year

Specialist needs school to be built in Oldham
4 days ago

Styles & Wood chiefs leave the business

CEO Tony Lenehan and finance boss Phil Lanigan depart
4 days ago

Commonwealth Games aquatic centre cost soars by 20%

Wates to start building work in January after £73m budget sign-off next week
4 days ago

New safety template in fight to prevent falls on site

New industry-standard guide launched: Download free now
4 days ago

Plan in for £365m Salford Cotton Quay scheme

Cotton Quays will include 37 and 48-storey buildings
4 days ago

Carillion liquidator to clawback £510m

Financial watchdog to consider whether to take action over conduct of directors in March
5 days ago

Graham wins £26m Poynton relief road

Main works on 3km Cheshire road to start next May
4 days ago

Interserve hires new construction commercial director

Ben Edwards takes up new role after seven years in Middle East
5 days ago

Developer fined £600,000 for white finger outbreak

Groundworkers suffer Hand Arm Vibration Syndrome on Places for People sites
5 days ago

British Land makes £200m profit on luxury Mayfair flats

Developer hails "highly successful" Clarges scheme
6 days ago

Network Rail plans Dragons’ Den to drive SME innovation

Rail infrastructure on track to deliver a third of spending via SMEs by 2022
5 days ago

Balfour tops October contracts league after road win

Morgan Sindall unseats Kier with the highest value of orders over last 12 months
6 days ago

Plans go in for 20-storey Bolton tower

Seddon lined-up as main contractor for major mixed-use scheme
6 days ago

Galliard to start luxury apartments above Crossrail station

Go-ahead for £140m residential scheme above delayed station
6 days ago

Contractor services