Many smaller house builders could go out of business if domestic reverse charge VAT is introduced on October 1st, a coalition of construction trade bodies has warned.

Fifteen associations have signed a letter sent to the chancellor, Sajid Javid, this week urging the new rules be postponed for a minimum of six months.

They claim the changes could lead to a loss of productivity, reduced cash flow and in the worst cases, lead to a hit on jobs, tipping some companies over the edge, particularly small businesses.

Federation of Small Businesses policy and advocacy director, Craig Beaumont, said: “The reverse charge threatens to massively damage cash flow among small construction firms, many of which already struggle to stay afloat in an industry dogged by late payments.”

Reverse charge VAT means the customer pays the tax to revenue and customs instead of the supplier. The reverse charge applies through the supply chain where payments are required to be reported through the construction industry scheme.

Mr Beaumont added:  “What’s more, preparation time has been minimal – guidance on the change has only appeared recently, yet roll-out is just two months away. With uncertainty already hurting small business confidence, the government should do the sensible thing and postpone introduction of the reverse charge.”

Federation of Master Builders chief executive, Brian Berry, said they were urging the government to rethink the introduction date.

“With a potential no-deal Brexit also due to take place in October, the timing could not be worse,” he said.

More support needed

As well as postponing the changes, trade bodies would like to see an industry-wide communications campaign launched.

They want workshops across the country to explain the new rules to employers plus specific guidance on how to reduce the impact on cash flow. They are also calling for support for those who face financial difficult as a result of reverse charge VAT.

Finishes and Interiors Sector chief executive, Iain Mcllwee, said: “Credit in construction is already tight and with few lifelines from traditional financiers, further drains on cash will be fatal for some companies – this is almost impossible to prepare for.”

Bridging Loans by HZA

Brokers Hank Zarihs Associates agreed the changes would pose a challenge for SMEs but that development finance lenders would be able to offer support with fast bridging loans and other flexible funding options.

Hank Zarihs Associates | Construction industry demands delay on reverse VAT

The government said the new measures were to counter fraud and that consultation had started in 2017.

An HMRC spokesperson said: “We knew that this was a big change for the construction sector which is why there has been a longer lead in time than usual to give businesses more time to prepare. We have been engaging regularly with those affected plus their representatives.

“We are planning to contact businesses that could be affected and encourage those in the sector to contact their own suppliers to cascade this information, and to read up on the changes on the website.”

The other signatories to the letter included:  the British Construction Steelwork Association, Build UK, Building Engineering Services Association, Civil Engineering Contractors Association, Construction Products Association, Electrical Contractors’ Association, SELECT (Scottish electrical contractors), Lift & Escalator Industry Association , National Federation of Builders , Scaffolding Association, Scottish & Northern Ireland Plumbing Employers Federation  and the Specialist Engineering Contractors’ Group.

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Shiraz Khan is the author of the content. Shiraz is the managing director and founder of Hank Zarihs Associates. With over 16 years' of experience we are master brokers within the short term financing industry. We specialise in a wide variety of short term loans.