Reverse Charge VAT and Cash Flow
The VAT domestic reverse charge (DRC), which drastically alters the way VAT is accounted for in construction, will be applied as of 01 March 2021 to tackle fraud by stopping VAT changing hands throughout most of the construction supply chain. It is reported that VAT Fraud, within construction alone, currently costs the Treasury £100m in lost tax revenues each year.
In order to be prepared for these changes you may need to adapt your accounting software and processes plus increase VAT compliance to ensure that supplies and purchases are correctly processed. You should also be aware of potential cash flow difficulties as the changes are enforced, due to losing the buffer that being paid 20% VAT provides and consider moving from quarterly to monthly VAT returns. Also, you need to ensure your supply chain is complying with the DRC. If your suppliers are providing you with ‘construction services’, then you should not be charged VAT.
The following criteria can help you understand if the VAT Reverse Charge
will apply to your business:
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Are you VAT registered?
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Do you supply relevant construction services?
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Are those services subject to CIS reporting?
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Are those services subject to VAT?
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Is your client VAT registered?
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Your client is not an end-user or intermediary connected with the end user.
If you are impacted by the upcoming changes or are unsure of the potential implications to your business, contact your advisors or our team at Stonebridge for guidance.
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We at Stonebridge are affected by this legislation change as we provide relevant construction services, therefore, will not be charging you VAT on invoices from 01 March 2020.
Supply Chain Transparency
In this industry we are used to working within complex and ever-changing supply chains, making it difficult for us to have full transparency of compliance throughout. Whilst we may know that we ourselves are not operating Modern Slavery, committing VAT Fraud or employing Illegal workers, can we be sure that this is the case throughout our various chains?
With the upcoming VAT reverse charge changes, HMRC are actively investigating firms that may have been associated with fraudulent tax losses and many construction firms have received similar correspondence in recent weeks:
Receiving such a letter and the prospect of HMRC investigation is not to be taken lightly. The value of this fraud being investigated is substantial and we know it is not a one-off example, with HMRC reserving the right to impose 'unlimited fines' upon those found guilty of facilitating tax fraud. We recommend that you conduct regular checks on the integrity and compliance of your supply chain to safeguard your company from the fraudulent activity of others.
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As the service we provide you with does not fall into the Reverse Charge VAT scheme you can be safe in the knowledge that no VAT fraud could occur, whilst also benefiting from 20% less to pay on our invoices, positively impacting your cash flow.
If you need help in ensuring you are not at risk, please email:
compliance@sbcontracting.co.uk
where our expert team are ready to help, or check this guide showing the steps you can take to know you are operating in a clean and transparent supply chain.
Prompt Payment Code
The Prompt Payment Code requires firms to commit to pay 95% of supplier invoices within 60 days. Last year, several notable names in the construction industry were suspended from the code for failure to comply with this commitment. Whilst some companies have substantially improved their timely pay, we know delayed payments remain a major issue and strain on cash flow.
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In July, subcontractors were again let down on their expected payments from Galliford Try, who have been suspended from the PPC previously.
With uncertain financial times upon us, this is a risk we all need to be prepared for with a plan to mitigate in place. A worthwhile investment to consider is Credit Insurance which will provide the reassurance that you are safe guarding your business from the risk of bad debt and knowing that should you have a problem supplier; your loss will be protected.
Upcoming Changes to IR35
The changes to off-payroll working rules, known as IR35, will go ahead in April 2021 after being postponed earlier this year whilst businesses and individuals were responding to the economic impact of Covid-19.
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This delay has provided some much-needed additional preparation time to ensure you will be ready and complaint when the changes are enforced.
We know many businesses have already implemented changes to their contractual documentation and internal processes to accommodate the new rules however, if you have not begun a review of your contingent workforce, it’s time to act.
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We will be following up in a later edition on these changes, in more detail, as they approach.
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What’s New at Stonebridge
Showing our commitment to continually build and evolve the services we provide we both welcome and highly value feedback from our Clients and Contractors. We routinely review our processes, taking onboard the feedback we receive.
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In recent feedback we identified an opportunity to enhance our Self-billing process by increasing the level of information we provide to payees.
Our teams solution is to provide a timesheet breakdown displaying a clear and detailed summary of hours and rates billed by subcontractors, providing full clarity of payments of each self-bill. The updated process goes live at the end of this month, following approval from our advisers.