The campaign for the government to ditch reverse charge VAT is mounting with the Federation of Master Builders, FMB, claiming two-thirds of SMEs believing it will damage cash flow.
Scottish National Party MP Kirsten Oswald has already tabled an early day motion calling for the controversial new regime to be dropped.
FMB chief executive Brian Berry said: “This is a damaging policy being introduced at the worst possible time for builders. By removing the flow of VAT money between businesses in the construction supply chain, four in ten builders say this will have a ‘significant or moderate’ impact on their cash flow.”
The new regime was to have gone live in October 2019 but was deferred to 1st March 2021 following industry lobbying. The new policy means no-one in the supply chain can invoice for VAT and pass the money on later to the tax office.
Build UK has told the government that many SMEs are fighting to consolidate their cash flow following the pandemic and the effects of leaving the EU. It has set up a Twitter hashtag #StopReverseVAT to channel responses from affected construction companies.
The organisation calculates that for companies that submit quarterly VAT returns they will need an extra five per cent of annual sales to compensate for the loss of cash flow. Firms who submit monthly returns will need an extra three per cent of annual sales.
“The introduction of the charge at this time will put jobs and businesses at risk and may result in companies that survived the Covid-19 outbreak and the UK’s withdrawal from the EU being undone by this additional burden,” said Build UK deputy chief executive Jo Fautley.
Brokers Hank Zarihs Associates said that property development lenders would be there to support SMEs experiencing cash flow hardship.
Licensing builders holds key to tackling fraud
The new policy is being introduced to tackle missing trader scams where fraudsters import goods VAT-free from other countries and then sell to domestic buyers charging them VAT.
City Lofts London director Deepak Sing Udassi believes a mandatory licensing scheme for the construction industry would be a better means for tackling the issue.
“Due to the little to no regulation in the industry, rogue traders are able to operate freely, to the detriment of consumers and reputable businesses like mine.
“Licensing would also drive-up standards, professionalism and the reputation of the industry, which is clearly not well regarded across Whitehall as demonstrated by this punitive policy.”
Elland and Steel Structures Ltd managing director Mark Denham said: “If this initiative is applied from 1t March, it will be the ‘final nail in the coffin’ for many sub-contractors both big and small.
“Reverse VAT penalises good honest companies that have continually paid their VAT on time.”
Build UK is calling on all firms in the supply chain to write to their MPs to request support for the forthcoming early day motion.