Building services and construction bodies have argued that the planned introduction of reverse charge VAT will be hugely damaging for industry shortly before a possible ‘no deal’ Brexit
SNIPEF, BESA and the SEC Group have joined with other construction bodies to urge government to defer the introduction of VAT reforms until 2020 over fears about further market uncertainty.
A joint letter sent to Chancellor Sajid Javid and signed by over a dozen major construction industry bodies has asked to delay introducing reverse charge VAT by at least six months to avoid compounding severe market disruption in the event the UK leaves the EU on October 31.
The trade groups have said that waiting to implement the reforms until April 2020 would allow industry to better prepare for the impacts on their finances, as well as providing more time for HMRC to understand any possible market impacts.
The joint letter stated, “If introduced in October, we believe reverse charge VAT will have a significant negative economic impact on the industry, substantially increasing the burden on business and restricting cashflow.”
“The timing of these changes could not be worse given they are due to take place just before the UK is expected to leave the EU, quite possibly on ‘no deal’ terms.”
Government has described reverse charge VAT as a major reform of existing processes for collecting tax. The changes are expected to impact the construction and building services sector, including heating, lighting, air conditioning and ventilation work.
The reforms will apply to individuals or companies registered for VAT in the UK and means organisation receiving a service must pay the required tax to HMRC as opposed to the supplier.
“Over the edge”
Signatories of the open letter expect reverse charge VAT to be a considerable burden for industry that will compound ongoing issues such as cost pressures, skills shortages and other negative impacts from ongoing uncertainty about the UK’s Brexit policy and how it will affect industry.
The letter added, “Reverse charge VAT could lead to a loss of productivity, reduced cashflow and in the worst cases, lead to a hit on jobs, tipping some companies over the edge. Small business owners will be least able to cope, as they already spend on average 44 hours per year, which is the equivalent to six working days, on VAT compliance and are currently getting to grips with ‘making tax digital’ for VAT returns.”
key infrastructure and housing targets set out by government could also be compromised by enforcing a raft of major policy and tax changes on the construction industry during October, with the sector accounting for an estimated 9 per cent of GDP, according to the letter.
Industry has also called on the Chancellor for more focused, plain English guidance on dealing with cash flow issues raised by the VAT reforms and workshops for the construction sector around the UK. This should be backed by support mechanisms facing financial difficulties in the switchover to reverse charge VAT, the letter added.