VAT cash-flow crisis looming for construction

Grant Prior 2 years 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

Wates gets green light to start Romford estate rebuild

Latest stage of £1.5bn regeneration programme to start on site next year
2 days ago

Careys dropping Scudder demolition name during restructure

Careys to focus on core civil engineering and dry lining work
2 days ago

Ilke Homes lands £44m deal for Essex housing development

Modular specialist scales-up its operation
2 days ago

Bidders day for £254m M5 Junction 10 scheme

Gloucestershire County Council will lead procurement of major upgrade scheme
2 days ago

EcoWorld London to close construction arm

Developer part-owned by Willmott Dixon restructures
2 days ago

Fulcrum wins job to power up £85m mega-greenhouse

Multi-utility outfit will hook-up one of the country's largest greenhouse projects
2 days ago

Bezos firm picks UK to build £300m fusion test reactor

Work will begin in 2022 on large-scale nuclear fusion test facility in Oxfordshire
2 days ago

Hill bags job to revamp Shredded Wheat Factory

Plans also in for over 1,200 homes in several blocks around the iconic factory buildings
2 days ago

HS2 starts search for £500m phase 2a delivery partner

Design and delivery partner will manage design and construction of £4.5bn next leg to Crewe
3 days ago

Payroll tax cheat ordered to repay £1.7m

Former tax consultant Mike Huges stole £6.9m from construction workers' pay packets
4 days ago

Plans in for £300m Blackpool leisure scheme

Build back better plan to transform town seafront with major visitor attractions
4 days ago

Wates Residential hires London housing veteran for expansion

Nick Williams takes new production director role to deliver growing pipeline of work
3 days ago

Network Rail unveils next generation of bridges

Lightweight,modular crossing slashes construction times
3 days ago

Hunt starts for A303 Stonehenge technical consultant

Delivery Assurance Partner role will be worth £60m over five years
4 days ago

Amey suffers £98m loss after further contract provisions

Impact of Covid and future loss provisions set restructuring plan back
4 days ago

Covid blamed for record size of construction disputes

75% of survey says disputes arose from claims specific to the impact of the pandemic
5 days ago

Severfield boasts £300m order book after resilient 2020

Firm says it is continuing to manage steel price and availability challenges
4 days ago

Go-ahead for Liverpool £60m Anfield Road stand

Buckingham Group set to build 16,000-seat stand taking Anfield capacity to 61,000
5 days ago

Crane supervisor hit on head during staircase delivery

Serious accident on £250m Lewisham Gateway phase 2 site
5 days ago

Clarion to build resi scheme at old Boddington’s Brewery site

Construction on 442 apartments in central Manchester set to begin mid 2022
4 days ago

AGD upgrades foundations for Antony Gormley’s ‘Iron Men’

Piling rig shores up iconic statues: Video
5 days ago
AGD Equipment Ltd

EU worker shortages driving up London labour rates

CIS wages start to rise in the Capital ahead of EU Settlement Scheme deadline on June 30
5 days ago

Pagabo readies market for new £1.6bn civils framework

Bidders day for new civils and infrastructure projects framework
6 days ago

Bouygues bags £30m Swansea hi-tech office job

Work to start this summer on 71/72 Kingsway office in city centre
5 days ago

Willmott Dixon to install car chargers at all sites and offices

Charging infrastructure being installed as hundreds of staff turn to electric cars
5 days ago

Trio win £1.6bn Defence Estate hard FM deal

Engie/Serco JV wins two of four regional maintenance and repair deals
6 days ago

Kier wins £17m upgrade of Lewis Hamilton’s old school

Work to start on two new blocks at Saint John Henry Newman Catholic School in Stevenage
5 days ago

Anderson lands £10m Redrow groundworks deal

Latest win tops "superb few months" for residential contractor
6 days ago

Nmcn facing make-or-break refinancing decision

Contractor will "consider its remaining options" if talks fail
6 days ago

Ferrovial UK arm edges into profit after five years of losses

Ferrovial Construction UK returns a pre-tax profit of £1.5m
6 days ago

Contractor services