Thousands of construction companies are facing a 20% drop in cash flow when VAT changes come into force in October. Government experts believe 150,000 firms could be hit by the reverse charge.
The changes mean companies in the construction supply chain will no longer receive their 20% VAT payment when they submit bills, the VAT cash will instead be paid direct to HMRC by the customer receiving the service who will reclaim it in the normal way.
One worried specialist with a Â£50m turnover told the reporters: We’ve estimated that for us as a tier two contractor this will have a negative impact on cash of £2.3m.
If you are already running at the limit of lending and can’t get more money from your bank and HMRC just plough on as they usually do you could be screwed.
Tier twos are already net providers of free credit to Tier one contractors and now we won’t be getting that VAT cash in from Tier ones.
HMRC has introduced the change to combat missing trader fraud where companies charge and collect VAT payments then disappear owing the tax man.
Payroll companies were braced to be hit hard by the changes but they have now been granted an exemption.
HMRC said: Employment businesses who supply staff and who are responsible for paying the temporary workers they supply, are not subject to the reverse charge.