The largest trade association in the UK construction industry has called on the government to put October’s VAT reverse charge on ice following news that two-thirds of small builders have not even heard of the plans.
In a letter to financial secretary to the Treasury Jesse Norman, the Federation of Master Builders (FMB) chair Brian Berry has expressed serious concerns about the government’s plans to make changes to the way VAT is collected in the building and construction industry.
Berry went on to state that unless the government delayed topping out the rules, it could lead to a spike in company insolvencies and ‘construction chaos’.
Lack of awareness
Underpinning the association’s worries is new research undertaken by the body regarding awareness of the new rules that are due to come into force in October 2019.
A survey of the body’s 8,000 small and medium-sized construction firm members found that over two-thirds (69%) have not even heard of reverse charge VAT, and of those who have, more than two-thirds (67%) have not prepared for the changes.
The FMB has recommended a delay of at least six months to the changes to avoid what the association calls a “negative economic impact” on its members and the industry as a whole.
“Construction companies are already struggling with Brexit uncertainty, sky-rocketing material price rises and skill shortages and reverse charge VAT is yet another thing for them to deal with,” said Berry. “What makes things worse is that HMRC has failed to deliver on its promise to help the industry to prepare. The guidance is not user-friendly and even tax experts are scratching their heads over it.”
The lack of plain English guidance around the changes was recently flagged by AccountingWEB’s resident VAT expert Neil Warren. He was asked by an accountant to draft a letter spelling out the new rules to send out to clients affected by the changes, which he wrote and duly featured here on AccountingWEB.
The builders’ body also criticised HMRC for not doing enough to prepare the industry for the changes. The FMB letter states that the Revenue’s guidance document was only published four months before rules were due to be rolled out, and goes on to label the advice as ‘unclear’ and ‘contradictory’ in place.
HMRC was due to have a dedicated website and marketing campaign for the changes to help prepare the hundreds of thousands of construction companies impacted by the changes, but this has so far not materialised.
Cash flow implications
In the comments section below Neil Warren’s guidance letter, AccountingWEB regular lionofludesch also counselled that it was “worth warning” affected clients about the potential cash flow impact on their businesses – a point also picked up by the FMB.
In its letter to the government, the builders’ body stated that rolling out the reverse charge rules in October will have a “serious impact” on cash flow, as well as imposing a “significant administrative burden” on construction companies, “fundamentally changing” the way they invoice their clients and pay their taxes to HMRC.
The FMB warned that the industry was already starting to show signs of decline, with its latest ‘State of Trade Survey’ flagging the first fall in workloads for SME construction companies in six years.
“There is a real risk that these changes could lead to insolvencies if HMRC does not prepare the sector sufficiency,” stated Berry.
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