Chancellor urged to rethink reverse charge VAT plans

John McGhee

SELECT has teamed up with more than 40 contractor and trade association members in writing to the UK Government demanding the withdrawal of proposed Reverse Charge VAT legislation.

The organisation revealed it is the second time the trade bodies have felt the need to ‘press the case for a rethink’ with chancellor Rishi Sunak in the absence of a reply to a detailed argument they sent him in a letter dated December 20 last year.

The latest appeal reiterates the fact that Reverse Charge VAT  – due to come into force in March – will ‘restrict cashflow in a vital and socially contributory industry’, especially to the smallest firms, at ‘just about the worst possible time’.

The letter, led by the Federation of Master Builders, emphasises that the policy risks the industry’s pandemic recovery and limits the scope for protecting and creating jobs.

VAT reverse charging means businesses which are both VAT and Construction Industry Scheme registered will no longer pay VAT to most of their subcontractors. Instead, VAT will be paid to firms which supply only labour (employment businesses) and to the merchants and businesses that sell building materials only without any fix.

John McGhee, SELECT’s director of finance and resources and association secretary, said, “The proposals will substantially increase the burden on business and restrict cash flow in what is already an extremely difficult economic climate. The changes will particularly impact SMEs that provide both services and materials. This is because they will have to pay VAT on the materials they purchase, including extremely costly elements such as steel, cladding and concrete, but will not be paid the VAT by their customers. For a significant number of companies this will be unsustainable.”