Business Advice

FIS is a dedicated resource that exists to support our members.  A key part of this is helping to manage the red tape, take the pain out and support the development of your business.  Members can access a range of helplines, toolkits and resources through the FIS.  If you don’t find what you are looking for below, give the FIS team a call on 0121 707 0077, this is a growing bank of information and needs to meet your needs.

Preparing for Brexit Toolkit

We have created a dedicated area which focusses on Brexit. Visit brexit checklist for the latest information

Implementing Reverse Charge VAT Toolkit
What is Reverse Charge VAT

Members need to prepare themselves for the upcoming reverse charge VAT – this is perhaps the biggest change to construction taxation since the launch of the CIS Scheme. The change will see VAT being paid between construction firms ‘reversed charged’ which will have consequences for your cashflow and accounting systems.

In simple terms it means that whilst VAT must still be accounted for at each stage in the supply chain, for construction work the cash will only be collected on the top contract, VAT will be shown but the money will be reverse charged (zeroed out on the invoice) and payments will therefore be net VAT on all invoices below this in the supply chain.

This simple calculator helps you to work out the impact – Reverse VAT Simple Cash Flow Calculator

What will be the impact

Effectively twofold – admin to prepare and cashflow.  We have provided a cashflow calculator below (note it is generic and needs to be adapted for your business as every is different, but gives an indication).  We have been getting feedback from our members as to the extent of the problem, these are statements from members:

“We are a specialist fit-out business who works both for main contractors and directly for clients, in about an 60:40 ratio.  Our turnover is roughly £6m.  If we set aside the additional admin, which given the structure of our business is particularly complicated, we think the overall cash cost to the business will be around £150-£200k”. 

“We’ve already done a detailed analysis and, all other things being equal, we are facing a £800k cash hit by the end of January 2020. Our funding model uses invoice discounting to finance day-to-day working capital, so by that time we effectively lose 4 months of “VAT cash”. To mitigate this, we are likely to move to monthly VAT reporting, which reduces the impact to around £680k. Our T/O is around £2m per month and we anticipate 50%-60% of this to be affected.”

Determining whether the Reverse Charge Applies – communicating with your customer

Reverse charge VAT will involve decision making before an invoice is sent to a customer based on the nature of the work done.  Your accounts departments will need to know whether the customer is VAT registered and whether the customer is CIS registered to determine whether the Reverse Charge is to be applied.

Think about collecting your customers VAT registration numbers and CIS UTR now for projects that will run over into autumn 2020. It is worth getting an End-User Certificate to confirm VAT status, we have provided an example below (see template below).

Communicating with Sub Contractors

It is suggested a letter or email is sent to your VAT registered subcontractors to draw their attention to the coming changes and start them thinking and planning. The more firms that know and understand that there are changes ahead the better. This letter is not just for your subcontractors. Imagine your contractors sending it to you, many contractors will use it or their own form of words. (see template below)

What else needs to be done

Make sure to test your own cash flow, and consider whether you ought to ask to become a monthly repayment trader. There is a spreadsheet available to help you do this in the links below.

Consider becoming a Monthly Repayment Trader

Apart from the additional admin, cash flow is the biggest concern. Many companies will be paying out VAT on material and non-construction services, but will not be collecting it on their invoices, so you will be down by the VAT for a quarter.  Worth talking to your accountant and you need to check that you will benefit, but effectively if you move to a situation where the VAT are going to be owing you money, you can consider moving to monthly returns.

To switch to monthly returns you can:

  • Ring the HMRC helpline 0300 200 3700
  • Apply online to change your registration details
  • Fill in form VAT 484 and send it to the address on the form

Resources to help you to comply

Useful Links

A simplified introduction to Reverse Charge VAT and how it relates to the interiors sector was prepared by Haslers for the FIS in the May edition of the SpecFinish magazine (see Page 14-15)

Public guidance has now been released and is available here.  We urge all members to download a copy and take the time to read it. Companies must not start reverse charging before the start date.

FIS is a member on your behalf of the Joint Taxation Committee and as part of this subscription has a specialist helpline available to members.  To access the helpline call:  0121 707 0077

More from the Joint Taxation Committee here

Making Tax Digital

HMRC has produced a step-by-ste guide on Making Tax Digital for VAT as a business. You can follow these steps if you’re a business or sole trader and you need to follow the rules for Making Tax Digital for VAT.

The process covers:

  • Check if you have to join
  • Get the right software
  • Sign up for Making Tax Digital for VAT
  • Authorise your software

Access the guide here.

Additional support is available to FIS Members on matters of Business, Taxation (including specialist support from the Joint Taxation Committee) and Insurance through our extensive range of membership benefits click here to find out more