The controversial “domestic reverse charge” change came into force last March and means companies in the construction supply chain no longer receive their 20% VAT payment when they submit bills.
The VAT cash is instead paid direct to HMRC by the customer receiving the service who will reclaim it in the normal way.
That has left a lot of specialist contractors no longer receiving VAT payments from customers but still paying them to suppliers.
In that situation subcontractors become known as “repayment traders” who are owed money at the end of each quarter by HMRC.
Firms have contacted the Enquirer claiming HMRC is not paying their cash back quickly enough.
Now John Woolnough, director of Nationwide Construction, has had enough and has written to his local South East Cambridgeshire MP Lucy Frazer demanding action.
Woolnough said his firm is owed more than £80,000 in outstanding VAT refunds.
His letter said: “The reverse charge strategy was always going to cause cash flow problems, especially for subcontractors such as ourselves.
“Whilst not receiving VAT, we still must pay, circa 50% of our supply chain VAT. This leaves us in an extremely vulnerable decision, especially after battling through Covid.
“The idea and process are flawed to the extreme, we will only ever be submitting claims for refunds now. Not only was this going to be difficult to work with, but we also now find ourselves funding HMRC.
“Since implementation we have received one refund. We have now reverted to monthly returns in the hope that HMRC can meet their liabilities in a timelier fashion.
“Please let me know how we are to continue trading under these circumstances. Goodness knows how other companies are getting on.”