Home News ICAEW raises concerns over huge construction tax shake up

The Government is set on stamping out tax fraud in construction and has three measures coming into force, firstly the introduction to the Domestic Reverse Charge VAT from the 1 March and then from April 2021 changes to the Construction Industry Scheme (CIS) and amendment to the IR35 off-payroll rules.

With Government confirming last week that the introduction of the Domestic Reverse Charge VAT will be going ahead, ICAEW have raised concerns about the time to prepare for CIS and impact on cashflow.  Particularly highlighted in their response to proposed changes, ICAEW raises concerns about plans to remove firms’ ability to take account of the cost of materials when paying down the chain.  The faculty warns that this change may result in businesses having insufficient cash to pay sub-contractors amounts that they are owed.

It is also well documented that the Domestic Reverse Charge will impact cash flow, with one member of the Finishes and Interiors Section reporting:

“We’ve already done a detailed analysis and, all other things being equal, we are facing a £800k cash hit by the end of January 2020. Our funding model uses invoice discounting to finance day-to-day working capital, so by that time we effectively lose 4 months of “VAT cash”. To mitigate this, we are likely to move to monthly VAT reporting, which reduces the impact to around £680k. Our T/O is around £2m per month and we anticipate 50%-60% of this to be affected.”

Further information on tax changes are provided by FIS in the Business and Taxation Toolkit

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