Don’t be caught out, warns leading accountancy practice Whitley Stimpson
This October there’s set to be a major shift in VAT legislation within the construction sector, and with time running out, Whitley Stimpson has concerns that many firms are still unaware that the new rules are coming into force.
The VAT reverse charge for construction services removes the need for the supplier to charge VAT on an invoice between contractors. Instead, the contractor becomes responsible for the charge themselves. The aim is to avoid what has been called ‘missing trader fraud’, where a sub-contractor will charge and be paid VAT but then disappear before it is declared to HMRC. As the contractor is now responsible for accounting for VAT, this practice can no longer happen. The new legislation comes into force on October 1st 2019.
Whitley Stimpson one of the largest independent accountancy practices in the area, is currently advising clients who are going to be affected by these changes across the sector. This includes all VAT registered contractors and sub-contractors who are registered with the Construction Industry Scheme.
Luke Wiseman, manager at Whitley Stimpson in Witney said: “This new legislation represents a major shift in how VAT is managed and collected, and construction firms need to be aware of how it will have an impact on their business. We are informing our affected clients and guiding them through how to comply. However, there seems to be little discussion about this across the wider construction industry, which is rather concerning.”
A survey of the Federation of Master Builders’ (FMB) 8,000 small and medium-sized construction firm members found that over two-thirds (69%) had not even heard of reverse charge VAT, and out of those that had, more than two-thirds (67%) have not prepared for the changes.
The FMB has called on the government for a delay of at least six months to the changes to avoid what the association calls a “Negative economic impact” on its members, and the industry as a whole.
The lack of plain English guidance around the changes was also flagged, labelling the advice ‘unclear’ and ‘contradictory’ in places, and the builders’ body also criticised HMRC for not doing enough to prepare the industry for the changes.
Companies that are unaware will incur penalties from the revenue. Taking action now will prevent a serious impact on cash flow; the new rules will add a significant administrative burden onto construction companies, fundamentally changing the way they invoice their clients and pay their taxes to HMRC. Whitley Stimpson can help to review the situation and make sure these companies have the software in place to deal with the changes that come into play in October.
Luke continues: “Smaller firms may suffer financially in that they lose the initial VAT income and it is important that every business considers the implications for themselves. Anyone with any queries should not hesitate to contact us and we will advise them of the best action to take for their particular circumstances.”
Please contact Luke Wiseman on 01993 700010 or firstname.lastname@example.org