VAT: Important changes relevant to the Construction Supply Chain
From 1 October 2019, there will be a significant change to how suppliers in the construction industry supply chain account for VAT. The changes will apply to businesses making or receiving specified services that are reported under the Construction Industry Scheme (CIS). We talked about this in more detail earlier this year. To read the full article click here https://www.placenorthwest.co.uk/insight/reverse-charge-vat-scheme-for-construction-industry/
Why are the changes being introduced?
The changes are being introduced to tackle missing trader fraud in the construction sector with construction services being targeted because labour-only suppliers do not typically incur significant sums of VAT, but will charge VAT to their customers.
What are the likely impacts and concerns?
This has the potential to have a huge impact on cashflow. In many instances subcontractors will no longer charge VAT on their services and therefore no longer benefit from holding this cash until it is required to be paid over to HMRC. This will also mean an increasing number of companies being due VAT refunds on an ongoing basis with the possibility of some of these being slowed down due to HMRC enquiry.
Systems and administration will also be impacted. The change will lead to additional provisions in new contracts and parties to existing contracts will need to confirm relevant information to ensure payments are made correctly. Generally, accounting and invoicing procedures will need to be reviewed and updated too.
What support is needed?
In terms of funding, the changes are likely to have an impact on subcontractors’ cashflow so it is important they begin to interrogate their funding lines and consider other options where necessary.
Construction businesses and all involved should review the supply chain to identify potential issues and pinpoint where the new rules would apply.
We are working with subcontractors and construction businesses, reviewing theircurrent finance systems to assess readiness for this new regime and providing recommendations where required.We are also advising on VAT return intervals as a switch to monthly returns could be beneficial.
If you need support with funding or advice to help understand the changes and revised obligations get in touch with Carolyn.VanHecke@cowgills.co.uk.
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