Heating and Ventilating

The trade bodies felt the need to press the case for a rethink with the Chancellor of the Exchequer, Rishi Sunak, MP. The appeal, sent earlier this month, reiterates the fact that Reverse Charge VAT will restrict cashflow in a vital and socially contributory industry, especially to the smallest firms, at just about the worst possible time.

The letter, led by the Federation of Master Builders, again emphasises that the policy – due to come into force on March 1 – risks reversing what modest recovery the industry has made from the pandemic and will limit the scope for protecting and creating jobs at a time when the country needs this most.

Fiona Hodgson, chief executive of The Scotland and Northern Ireland Plumbing Employers’ Federation (SNIPEF), acknowledged an earlier delay in introducing the changes and also other UK Government aid to the sector, but said: “Introduction of Reverse Charge VAT now would be seriously detrimental to the economic recovery of the sector.”

Reverse Charge VAT will change how cash flows through the supply chain as subcontractors will no longer charge VAT, which currently they can hold on to until it is time to pay it to HMRC. Instead, only the firm at the top of the supply chain will charge VAT to the end client, which will then be paid to HMRC.

The Government's plan is intended to clamp down on “missing-trader fraud”, which HMRC estimates costs about £100m per year in lost VAT. Such fraud involves a company collecting VAT from customers then disappearing without paying the sums collected on to the tax authorities.

Ms Hodgson said: “The changes will particularly impact SMEs that provide both services and materials. This is because they will have to pay VAT on the materials they purchase which can be costly, but will not be paid the VAT by their customers. Instead, they will need to wait until their next VAT return to recover the VAT which will detrimentally affect their cash flow and that for a significant number of companies will be unsustainable.”