According to Construction Enquirer there is a looming cash flow crisis facing construction companies as VAT changes come into enforce this October. The changes mean that that up to 150,000 could be hit by a ‘reverse charge’ as companies will not be able to be able to claim the normal 20% when they submit bills in the construction supply chain. The VAT revenue raised by these changes will be paid to HMRC and the companies will have to claim it back in the normal way.

In the long term no one will be out of pocket, however one doesn’t need a first in economics to see the potential problems in the short term. Quoting directly from the article: “One worried specialist with a £50m turnover said: “We’ve estimated that for us as a tier two contractor this will have a negative impact on cash of £2.3m. If you are already running at the limit of lending and can’t get more money from your bank and HMRC just plough on as they usually do you could be screwed. Tier twos are already net providers of free credit to Tier one contractors and now we won’t be getting that VAT cash in from Tier ones.”

The HMRC described the scheme as a ‘major change’ in the way that VAT is collected within the construction industry. Coming into effect on the 1st of October it is relevant to all UK VAT registered businesses or individuals that receive or supply specified services that are reported under the Construction Industry Scheme (CIS). For full details of the services effected by this scheme, and for what you need to have in place before it comes into effect, please visit the HMRC webpage.

Naturally, these changes are a concern. Neil Lancaster, of Adams Moore said: “It is crucial for many businesses to acknowledge how this change may affect their cash flow due to the fact they will not receive VAT directly from the contractor.” There is little doubt that the cash flow of many companies is likely to be effected. There is help at hand though. Funding is available for the majority of businesses, either through business loans, asset financesupply chain finance, tax and VAT funding and/or various other options.

If you have any enquiries or would like further information, please don’t hesitate to contact a funding specialist who can guide you to the best options and source the best solution for your particular business.

 

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