Construction job loss fears voiced over imminent VAT changes

FIFTEEN construction trade bodies have signed a letter addressed to chancellor Sajid Javid detailing their ‘serious concerns’ over reverse charge VAT changes due to take place on October 1.

The trade bodies, including SELECT, Build UK and the National Federation of Builders, warned that the change could lead to loss of productivity, reduced cashflow and job losses.

They have requested that changes be postponed until April 2020, to allow the industry ‘some breathing space’ following Brexit, for HMRC to fully assess the potential impact of changes on the construction industry, and to ensure businesses are adequately prepared for the required changes.

Reverse charge VAT means that the customer receiving the service will have to pay the VAT, rather than including it in the supplier’s invoice.  When a transaction is made, the recipient of the service inputs both their purchase and supplier’s sale in their VAT return.  Such a change will make it more difficult for companies to evade tax.

The changes will require companies to alter their accounting systems to ensure they are compliant with the new regulations. A Federation of Master Builders (FMB) survey in July found that 69% of its members had heard nothing about the reverse tax changes, and that in those who had, only 33% said they were prepared for it.

The letter sent on August 9, asked for an industry-wide communication campaign to be introduced which includes workshops explaining the system; improved plain English guidance on changes and advice on reducing the impact on cash flow; a dedicated reverse charge VAT website and support for those who face financial difficulty as a result of reverse charge VAT.

Brian Berry, chief executive of the Federation of Master Builders, said, “The fact that 15 of the leading construction trade bodies have come together to speak to the Government with one voice on this issue shows the extent to which we are concerned. We urge the Government to rethink the timing of these changes and announce a delay of at least six months. With a potential no-deal Brexit also due to take place in October, the timing could not be worse.”

Craig Beaumont, policy & advocacy director of the Federation of Small Businesses, said, “The reverse charge threatens to massively damage cashflow among small construction firms, many of which already struggle to stay afloat in an industry dogged by late payments. What’s more, preparation time has been minimal – guidance on the change has only appeared recently, yet roll-out is just two months away. With uncertainty already hurting small business confidence, the Government should do the sensible thing and postpone introduction of the reverse charge.”

Alasdair Reisner, chief executive of the Civil Engineering Contractors Association, said, “Civil engineering contractors are extremely worried about the impact of the forthcoming new rules on their immediate cashflow and the impact that this will have on business sustainability. The construction sector is already struggling due to ongoing political uncertainty, with declining workloads for many members. The introduction of the reverse charge VAT may push small contractors into the red, as they do not have the resources to manage the immediate impact of the legislation change. We are therefore calling on Government to delay the implementation of reverse charge VAT and work with industry to help businesses prepare for the new rules in the best possible way.”

Iain McIlwee, CEO of FIS, commented, “This isn’t about industry not being prepared, but not being able to prepare. Whilst we’ve known about it for a long time, the information has only started to emerge from HMRC in terms of the process. We’ve been telling members about it, running workshops and webinars, but I’ve yet to meet someone who has had the letter from HMRC and so there are swathes of the market that still don’t know it is happening. Many of the accountancy software companies haven’t updated the software. The biggest issue, however, it is not the admin, it’s the impact on cashflow. Credit in construction is already tight and with few lifelines from traditional financiers, further drains on cash will be fatal for some companies – this is almost impossible to prepare for. I don’t think anyone could have seen the uncertainty into which this would be launched and consequently a pause would be prudent.”

Richard Beresford, Chief Executive of the National Federation of Builders (NFB), added, “For an industry facing lighter workloads, increasing pressure on cash flow and an already high rate of insolvency, reverse charge VAT could not have come at a worse time. By delaying the introduction of this measure, the industry will have more time to properly prepare and make their businesses more resilient, and more detailed guidance can be provided to ensure a smooth introduction.”

Steve Bratt, CEO of the ECA Group, said, “The Government needs to urgently reconsider the timing of their reverse VAT introduction. With insolvencies already at such a high level, and a no-deal Brexit on the horizon, these changes could hit business cashflow at a pivotal time for industry.”