Chancellor urged to abandon construction VAT changes

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In a letter to the chancellor, the Construction Leadership Council (CLC) has urged Rishi Sunak to abandon changes to VAT which could cause serious financial issues across construction

In the letter, the CLC asked Sunak to withdraw the reverse charge VAT ahead of the Spring Budget.

Changes to the ‘domestic reverse charge’ means businesses in the construction supply chain will no longer receive their 20% VAT payment when they submit bills.

The VAT reverse charge will instead be paid direct to HMRC by the customer.

In the letter, chairman of the CLC, Andy Mitchell, writes: “As you make your preparations for the Spring Budget, the Construction Leadership Council would like to update you on the progress we have made towards recovery since we last wrote to you in September.

“Our industry remains in extremely challenging times as we continue to adapt to ongoing Covid-19 rules, mitigate the impact of Brexit and prepare for the forthcoming implementation of rule changes on IR35 and the Construction Industry Scheme.

“It is also important to note that by continuing to operate the industry has suffered a serious financial impact as a result of project delays and costs incurred in adapting working practices. This has resulted in many contractual disputes which our monitoring suggests are currently growing and which will accelerate further still.

“We are currently quantifying the impact; however, it is reasonable to assume that without further financial support many companies will become insolvent.

“We recognise that difficult decisions will need to be made over the coming year, so have focussed below on a small number of key interventions that we believe will drive immediate economic growth and market confidence.”

Spring Budget recommendations

Meeting Net Zero ambitions

  • Committing to a National Retrofit Strategy
  • Offering Incentives for the commercial property sector

Expansion of the Building Safety Fund

Levelling up

  • Making the Infrastructure Bank an effective vehicle for regeneration
  • Securing Local authority funding

Stimulating economic activity and protecting jobs

  • Extension of the Stamp Duty Holiday and Duty review
  • Withdraw Reverse Charge VAT
  • Extension of employer apprenticeship incentives and Apprenticeship Levy flexibility
  • Other tax measures.

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