FIS has joined a powerful coalition construction bodies in calling for reverse charge VAT plans to be scrapped. In a letter signed by 44 bodies whose communities will be impacted, the coalition points out that many SMEs in the supply chain to delivering the Government’s ‘Build Build Build’ strategy, the introduction of Reverse Charge VAT will have a significant negative impact on the industry, substantially increasing the burden on business and restricting cash flow in what is already an extremely difficult economic climate. VAT often makes up to 20% of an invoice, in an industry where margins are typically far lower, sometimes as low as 1 – 3%.
As a result the changes will particularly impact SMEs that provide both services and materials. This is because they will have to pay VAT on the materials they purchase, including extremely costly elements such as steel, cladding and concrete, but will not be paid the VAT by their customer. For a significant number of companies this will be unsustainable and three case studies are set out are below.
FIS CEO, Iain McIlwee commented – “Whilst construction has powered through the COVID crisis, it has called on a deep reserve of determination and resilience, but we must not make the mistake of thinking all is well and Government can pile on more pressure. The next few months will be incredibly challenging for construction businesses as we try to manage the pipeline and programme issues that COVID has thrown up and confront the very concerning issues linked to the new immigration system and the potential labour shortage issues that this exacerbates as well as other potential inflationary pressure linked to Brexit. Many companies are simply battered and bruised and, with cash reserves depleted, facing further challenges from an unprecedented period of change – the Reverse Charge VAT could be the knock-out blow.”
Iain also expressed his gratitude to the working group that FMB have been chairing that has helped to keep this issue on the agenda and bring this coalition together to make a stand.
A full copy of the letter is available here – Joint letter to Rt Hon Rishi Sunak MP
The FIS Reverse Charge VAT toolkit is available here.