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These changes have been deferred, please click here to read more.

HMRC is introducing new VAT rules on 1 October 2019 specifically for the construction industry. The aim is to reduce fraud in the sector by making VAT registered customers responsible for paying over the VAT to HMRC rather than the supplier of the service provided. This only applies to businesses within the Construction Industry Scheme (CIS) though and it doesn’t apply to businesses supplying consumers and end users.

Under the new rules, a sub-contractor will only charge the ‘net of VAT’ amount and it’s then the customer’s responsibility to pay the VAT directly to HMRC.

Michael Burgess of Mitten Clarke explains “Whilst we can see the rationale for moving the responsibility for declaring VAT further up the ladder, we are concerned that sub-contractors won’t be ready for the changes or indeed understand the implications for their cashflow.

Many businesses use their output VAT as working capital; collecting the VAT and paying it over some 5 weeks after the end of the VAT period.  The timing is also far from ideal – affected businesses will feel the impact most at the end of this year, when their income is already seasonally low and January tax payments are just around the corner.”

Builders, joiners, ground workers, plumbers, electricians, painters and decorators etc are all businesses which will be affected if they are VAT registered and supply services to customers which are VAT and CIS registered, rather than to consumers or end users.

“Whilst this is bad news for the subcontractors it’s good news for the contractors.  They’ll be holding onto the VAT they would ordinarily have paid to suppliers, so their cashflow will improve.

We’re urging subcontractors to look at the impact of this now, to allow sufficient time to put alternative cashflow in place and if necessary, move to monthly VAT returns so that they can reclaim their input tax back sooner,” explains Michael.

If you’d like to speak to Michael or one of our tax team please contact us on 01782 279615.