Government U-turn gives construction a 12 month stay of execution on VAT changes

Construction companies due to be affected by changes in the VAT domestic reverse change  have been given an extra twelve months to prepare.  The news comes in the wake of a Hudson Contract survey that revealed one in ten SMEs in the construction industry supply chain said their cashflow would not be able to withstand the controversial changes to the way VAT is collected.

Hudson Contract Managing Director Ian Anfield says:  “The government has recognised the chaos these changes were destined to bring and it’s good to have recognition that extra time is needed to prepare and also to avoid changes coinciding with Brexit.”

The new rules, which will now come into effect on 1^st October 2020, mean those at the top of the construction chain will charge and collect VAT, but suppliers must report the tax while being unable to collect it.

Almost 1,300 SME construction companies took part in the Hudson Contract survey with key findings:

• 144 businesses believed they would not be able to withstand the impact to their cashflow from the VAT domestic reverse charge
• 65% of construction SMEs warned the changes would have a negative affect, although they believed they could withstand the impact to their cashflow
• 24% of businesses said they were unaware of the planned new rules

Ian Anfield adds:  “With our survey showing so many firms either unaware or unprepared for the new VAT rules, while many others fear for the very future of their businesses, it goes to show that a disaster in the making, that would have negatively affected tens of thousands of construction companies has been averted at the eleventh hour.

“The new measures were designed to combat fraud, but as things stand they will deliver a massive cash boost to the major contractors – a number of which have well-documented financial problems – while adding risk and complexity for smaller businesses. 

“Conversely, the impact on SMEs is likely to send shockwaves through the supply chain, with each of those surveyed by Hudson Contract having an average of five sub-contractors.

“I’m relieved the policy makers have listened to the industry and allowed more time for businesses to properly prepare, update systems and procedures, and try to find solutions to protect cashflow.”