More than one in 10 SMEs in the construction industry say their cash flow will not be able to cope with changes to the way VAT is collected, according to new research carried out by Hudson Contract.
The domestic reverse charge comes into effect from 1st October and means those at the top of the construction chain will charge and collect VAT while suppliers must report the tax but be unable to collect it.
The FMB has been warning that the industry is not prepared for the change and this new research suggests that the impact on SMEs could be huge, with each of the firms surveyed having an average of five subcontractors.
Hudson’s survey of 1,290 companies in the sector revealed the following:
- 11 per cent of companies surveyed (144) said they would not be able to withstand the impact to their cash flow from the VAT domestic reverse charge
- 65 per cent of companies surveyed (825) believe they can withstand the impact to their cash flow but warned it would have a negative effect
- 24 per cent of companies surveyed (321) said they were not aware of the new measure.
Ian Anfield, managing director of Hudson Contract, said: “The reverse charge will boost major contractors’ cash flow at the expense of SMEs. Failing outsourcers will be rubbing their hands together in glee as once again public money floods into their cash-strapped accounts.
“The companies surveyed have combined turnover of more than £5bn. If the results are applied to the construction industry as a whole, £9.9bn worth of turnover is at stake with tens of thousands of companies completely unprepared and unaware of the changes.
“The domestic charge was designed as an anti-fraud measure but has been hijacked in the lobbying process and as usual we have ended up with bad legislation. This will add risk and complexity for SMEs and will do nothing for HMRC or the taxpayer at a time of continuing political and economic uncertainty.”