VAT Reverse Charge, How Will You Fund the Gap?

What Is It?

From 1st March 2021 the VAT Reverse Charge will apply specifically to the Construction industry where the Sub-Contractor works for the Main Contractor. The Main Contractor receiving a supply has to pay VAT to HMRC instead of the Sub-Contractor. The Sub-Contractor does not charge VAT only the net amount and the Main Contractor accounts for the VAT and in turn, can recover the VAT. This will mean Sub-Contractors who ordinarily expected to receive VAT charged on Invoices will now no longer receive this potentially causing a cashflow gap.

Why Is It Coming Into Play?

The main reasons for the VAT Reverse Charge coming into play are due to help tackle est.￡100m losses each year due to fraud and incorrect VAT remits in the construction industry. HMRC will remove VAT from the supply chain to remove fraud or temptation of evasion. Insolvencies within the Construction industry also often mean HMRC are left with a significant shortfall when the sub-contractor acts as an agent for the HMRC.

Exemptions

There will be exemptions and the rules are aligned to established CIS rules if work carried out falls in scope of CIS, it will potentially fall in scope of reverse VAT charge. The main exemptions include working for the end user (ie not the Main / Principal Contractor) and this article does not seek to provide tax advice so highly recommend that you seek advice from your Accountant.

How Can We Help Fund The Gap?

With some Sub-Contractors facing an effective 20% drop in Turnover you must have a plan in place to plug the gap. If you haven't you do face additional cashflow pressure to meet demands such as HMRC liability payments, start of CIBLs / BBLs repayments and usual working capital payments. The good thing is there is still time to act.

We've supported Sub-Contractors for over 15 years with our specialist offering. As the UKs leading independent invoice finance provider with a 5* TrustPilot rating and a Times Top 100 company to work for we can assist in releasing cash upfront on your Invoices and Applications for Payment. This will help alleviate cashflow pressures your company may face in advance of the VAT Reverse Charge coming into play. This can be on a Confidential basis whereby your clients are not aware of our involvement and also funding on uncertified Applications for Payment can be made available.

Please get in touch with me for an informal chat to see how we could possibly assist on 07712 301481 or alternatively drop me an email on [email protected]. Our website details can also be found by clicking on this link. If you are an intermediary and would also like further information to see how we can assist your clients then please also get in touch