Reverse VAT could send countless construction sub-contractors out of business as their cash flow is sent into negative territory on 1 October this year under government rules that will impose reverse charge VAT on the construction industry.
The British Constructional Steelwork Association (BCSA) joins the 15 UK construction bodies in calling for a six month delay to the implementation of reverse VAT.
BCSA is also asking the government to use this time to review its decision to impose reverse VAT.
BCSA has calculated that for an average subcontractor turning over £15 million, reverse VAT will mean increasing negative cash flows, peaking at £262,500 in month three of the change.
‘This could be the end for many subcontractors who are already experiencing late payment, difficulties in agreeing final payment amounts and other additional costs such as the apprenticeship levy and increased pension contributions’, said Sarah McCann-Bartlett, Director General of the BCSA.
BCSA believes that the government does not fully understand the implications of yet another financial blow to subcontractors and has not communicated the changes sufficiently to industry. This is borne out by data collected by the Federation of Master Builders that shows that over two-thirds of construction SMEs (69%) have not even heard of reverse charge VAT.
‘The potential damage to subcontractors’ cash flow is significant, which is why BCSA is calling for the delay plus a review of the actual decision to impose reverse VAT’, said Sarah McCann-Bartlett.