Construction businesses urged to prepare for VAT changes

Nigel Roberts

CONSTRUCTION businesses have been warned that failure to prepare for upcoming VAT changes could result in a range of financial difficulties.

Nigel Roberts, head of VAT and duty at accountancy and business advisory firm Johnston Carmichael, said changes to VAT rules due to come into force on 1 October could catch construction service providers ‘off guard’.

He explained, “Following the introduction of the reverse charge rule the main contractor will now be responsible for declaring the VAT on services supplied by subcontractors. All businesses involved in the construction industry will need to review their supply chains ahead of time to consider how they will be impacted by the changes. VAT will disappear from working capital and cash flows will need to adjust to reflect this.”

Smaller subcontractors currently using the VAT Flat Rate Scheme (FRS) could be worse off, Nigel believes. “As smaller subcontractors will no longer be able to charge VAT for some services, they will be forced to fund the FRS from reduced receipts, in turn squeezing profit. FRS users should seek advice now on the impact of the 1 October changes. Most businesses will benefit from leaving the scheme and adopting standard VAT accounting.”

A recent survey of 8,000 SME construction firms by the Federation of Master Builders showed that 69% were not aware of reverse charge VAT, leading to calls to delay its implementation.

Nigel added, “With HMRC confirming that they will penalise non-compliance, it is crucial that any businesses who think they will be affected by these changes acts now to prepare.”

Johnston Carmichael is hosting a series of free events from 20-27 August in Aberdeen, Edinburgh, Glasgow and Inverness for firms in the property and construction sector. To book a place visit: www.johnstoncarmichael.com