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[PLEASE NOTE THAT SINCE THE PUBLICATION OF THIS BLOG, THE REVERSE CHARGE VAT CHANGES DISCUSSED BELOW HAVE BEEN DEFERRED UNTIL OCTOBER 2020 – ANDY]
The construction industry is regarded as something as a bellwether for the UK economy.
According to politicians and leading financial analysts alike, it is one of those industrial sectors whose fortunes are indicative of whether the country’s financial health is sound or not.
Their assessment of its importance means that the very latest figures make for fairly unpleasant reading.
The Office for National Statistics (ONS) has revealed that public and private work undertaken by construction firms is slowing down.
More than the 1.3 per cent reduction in output in between April and June this year, the drop in new public sector projects (10.9 per cent) was “the largest quarter-on-quarter decline since quarterly records began”
Against that backdrop, the Federation of Master Builders (FMB), the construction industry’s largest trade association, has called on the Government to ease the sector’s tax burden.
Building a Perfect Storm
It reckons that the imminent [Note – now deferred until Oct 2020] introduction of something known as Reverse Charge VAT, together with the continued roll-out of ‘Making Tax Digital‘ will worsen current conditions.
Combined with the prospect of a ‘no-deal’ Brexit, the FMB’s Chief Executive, Brian Berry, believes the twin tax changes will amount to a “perfect storm” for those involved in the building industry.
Existing concerns about the additional administrative responsibilities created by ‘Making Tax Digital’, which came into force for many VAT-registered businesses earlier this year, have been compounded by the so-called ‘reverse charge’ that is due to affect operators from the start of October.
A measure designed to help overcome the potential for non-payment of VAT by builders, it requires their customers to pay the tax directly to HMRC, something which the Federation of Master Builders has suggested could send some companies “to the wall”.
It should be, the FMB maintains, at least delayed for six months to allow a sector which – by the estimate of parliamentary researchers, currently employs some 2.4 million people – time to prepare adequately.
Even HMRC’s pledge to apply a “light touch” in its treatment of those construction firms which have difficulty following the new ‘reverse charge’ procedures to the letter during the first six months that it’s in force may not be enough to alleviate the pressure.
In that respect, I find myself wondering whether the Revenue’s announcement in the last few weeks to exercise discretion and not impose fines on 120,000 self-employed who have failed to meet ‘Making Tax Digital’ submission deadlines has set something of a precedent.
Due to the current, uniquely unpredictable circumstances confronting the domestic economy as a result of withdrawal from the EU – and its own role in meeting that challenge – might HMRC accede to more requests to go easy or will it turn a deaf ear and follow the rules regardless?
If it refuses to yield and the financial climate does turn decidedly chilly, will it be ministers or the Revenue in the firing line for potentially undermining the foundations of the UK economy?
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