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Major VAT Changes to Construction & Building Industry: Reverse VAT Charges

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Major change is due to the current VAT system in the construction and building industry.

In just a few weeks time, from 1stOctober 2019, a potentially huge burden will fall upon more than 150,000 businesses. Not only because businesses just aren’t ready for the change, but more so, because so many don’t even know about reverse charge VAT.

FACT: 69% of Federation of Master Builders Are Unaware of this Change

So why is this change being implemented? Well, it’s to tackle the issue of tax fraud, which is a big issue for HMRC within this industry: suppliers are charging their customers VAT yet are not paying this to HMRC.

Companies who will be legally obliged to comply arethose construction contractors and sub contractors supplying services between themselves who are VAT registered with the CIS and use the CIS to report payments.

As a result, HMRC is changing the way in which VAT within the construction and building industry is collected. From 1stOctober, the VAT will be paid by the customer - the opposite of what happens currently, hence its name ‘reverse’ – the process has been switched around.

In short, an invoice will be issued as usual, by the supplier, to the customer; this invoice, as usual will contain the VAT amount; however, when the invoice is paid the customer pays the VAT amount directly to HMRCand the balance to the supplier.

This reverse charge will be applicable on ‘services’ – these include: alterations, construction, demolition, dismantling, extensions and repair to buildings, railways, roads and waterways – on standard and reduced rate VAT supplies, excluding zero rated supplies.

Negative Cashflow
As a result of this forthcoming reverse charge ruling many businesses will see a negative impact on their cashflow. This is because usually, the VAT charged on construction services would be paid to them, which would then be held until they were due to pay their VAT fees – essentially, giving them free flowing cashflow and working capital each year.

With the new reverse VAT charges eligible companies will no longer receive the VAT, seeing their cashflow and working capital dry up; potentially stumping growth and expansion, even cash in which to settle bills – unexpected or otherwise.

Whilst the weight of these new HMRC changes will be timely, inconvenient and challenging,a business must be extremely careful that it does not crumble under cashflow woes. This is where Capital Corporate Finance can step in. We are experts in the finance market, specialising in alternative finance. As an award winning broker, and 100% independent, we will ensure we find tailored fundingfor your construction and building business.

Accounting Changes
This will of course mean big changes will need to be made to a company’s accounting system and tax returns. Whilst HMRC have said they will be tough on said new introductions, it has said it will allow for errors by a company in the first six months so long as the company is seen to be trying to implement the reverse charge, not simply avoiding or ignoring it.

So call me, Carole Roe, Founder of Capital Corporate Finance, today – ask questions, get answers, see results!

Call me directly on 07785 596053 or email me at carole@capitalcorporatefinance.co.ukand see why I am trusted by thousands of businesses to secure the right finance for their business.