Our Construction Team is led by Julie Swan, a chartered accountant, as well as an insolvency practitioner. Julie spent 5 years as an accountant working in industry predominately in the property and construction sector. Culminating as a financial controller role in a major property development business. Julie has bought this blend of experience and understanding of the construction industry to the practice.
The impact of the pandemic on the construction sector is well documented and this month is likely to be another major cashflow challenge for many smaller construction firms. Businesses that deferred their vat payments between March & June 2020 are due to repay that money this month. The Government announced on 23 February a new Vat Deferral Scheme to enable companies to settle the debt over a maximum of 11 monthly payments if they join the scheme by 19 March. Current vat payments remain due without any deferment."
This month also finally sees the introduction of the Vat Reverse Charge for building and construction services. Under this scheme the end users, i.e. businesses that are Vat and Construction Industry Scheme registered but do not make onward supplies of those building and construction services supplied to them, will be required to retain and account for vat charged by the suppliers of services. This scheme has been introduced to reduce perceived levels of vat fraud where suppliers of labour to the construction industry charge the end user vat but fail to pay it over to HMRC.
So, what is the cashflow issue?
In a well-managed, financially secure business the answer is nothing. However, it is well known that in a large number of smaller firms the vat collected is used to fund working capital during the intervening months before the vat payment is due. In the past 12 months, a significant number of firms will have seen a reduced level of income despite the various Government support schemes.
Notwithstanding the new vat deferral scheme, businesses are now potentially looking at increased payments to cover the 2020 vat payments. They also need to pay any vat due in the current period and will not be receiving the vat charged on sales invoices as of 1 March 2021. This reverse vat charge scheme will therefore negatively impact short term cashflow just at the time that the country is starting to emerge from lockdown and activity resumes.
If your business is facing this dilemma, or you are worried about your cashflow we urge you to get in touch as a matter of urgency. We can assess your situation and advise on the different options available to get you through this challenging period.
Contact our expert in the construction sector, Julie Swan.