“The government preaches about paying subcontractors faster and then they decide to introduce this.
“The fact that subcontractors will be incurring VAT but won’t be able to recover it for months is utterly stupid.”
Those, the words of Henry Boot CEO John Sutcliffe, encapsulated how many felt about the imminent changes to VAT, which had been due to hit subcontractors in three weeks’ time.
The change, which makes payment of the tax responsibility of the customer rather than the supplier, has now been put off until October 2020 – in what has been hailed as a victory for common sense by the Federation of Master Builders (FMB) and others.
Research by the FMB in July found two-thirds of SMEs were unaware of the imminent changes and the organisation warned of chaos if it went ahead.
That, and the hit on cashflow with contractors not paying the supply chain the VAT on invoices, was identified as the two main issues.
As CN’s finance editor David Price wrote last month, with Brexit and a possible winter slowdown on the way, this October would have been a terrible time to introduce the changes.
Since then, the political picture has changed too. With a potential general election also on the horizon, it became even clearer that it is not the right time to introduce a scheme that would hit SMEs in the pocket.
Not that any MP or Lord mentioned the issue in parliament mind you.
It had surprisingly little resonance in wider circles, though you could see it cropping up in the midst of an election.
More than one business person told us that they had stayed up-to-date with developments on the topic from reading CN’s coverage of the issue.
And as John Sutcliffe implied, it was inescapably bad logic to introducing a policy hitting supply-chain cashflow, a month after the government’s much trumpeted prompt payment policies came into effect and threats to ban those who regularly don’t pay on time from winning public contracts.
HMRC’s delay to the introduction should be welcomed by all concerned. It is an undoubted piece of good news for the sector in a time where there has been little.
However, this isn’t the end of the story. The same cashflow limitations from the introduction of the change may well still hit SMEs in a year’s time.
And if there hasn’t been a concerted, mass effort by HMRC to make everyone thoroughly aware of the changes in the next 12 months, this delay will have been for nothing and it may just be a case of kicking the can down the road.
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