VAT reverse charge: cash flow considerations

A major change affecting the way that VAT is collected in the construction industry is soon to take effect, meaning that customers will pay VAT directly to HMRC, rather than to their suppliers. Careful cash flow planning, including effective forecasting, will be essential to ensure that the new reverse charge regime doesn’t cause businesses in the sector to experience financial difficulties, potentially leading to insolvencies and difficulties throughout the supply chain.

First announced in the 2017 Autumn Budget, the construction sector’s VAT reverse charge aims to tackle the issue of ‘missing trader’ fraud, which reportedly costs HMRC in excess of £100M in ‘lost’ tax revenue each year. Currently, contractors on standard-rated construction projects charge their customers an additional 20% to cover VAT, with a responsibility to then file and pay the tax to HMRC. A contractor supplying a reduced rate service would add five per cent to their invoice. If the customer is a VAT registered business, they are usually entitled to reclaim the equivalent amount from HMRC when submitting their VAT return. However, this process has created an opportunity for fraudulent companies to abuse the system by failing to pay the additional VAT over to HMRC.

The new rules prevent this scenario by requiring the customer to pay the VAT on the services they receive to HMRC themselves and also reclaim it on the same VAT return, effectively cutting their supplier out of the VAT cash flow.

Originally expected to come into force next month, HMRC has decided to delay the domestic reverse charge on construction services by one year, until 1 October 2020. The move follows a warning made by construction industry bodies last month, over concerns that businesses in the sector are not prepared for the change. The delay will also allow HMRC time to address what some perceive as weaknesses in the existing guidance. For example,  a contractor will be reliant on the end customer in a supply chain to determine whether VAT is chargeable on the supplier’s services, however there is still a notable lack of awareness of this in the sector.

The changes to the way that VAT is accounted for when a contractor supplies services for a construction project could have a significant impact on its cash flow profile. Currently, many suppliers use the VAT they are paid by their customers to fund payments to their suppliers, until they are required pay it to HMRC with their next VAT return. However, businesses need to prepare for the fact that from October 2020, payments will be received net of VAT. A failure to consider this could leave them struggling to pay suppliers, and in the worst-case scenario, facing business failure.

Adequate cash flow forecasting is one way that companies can prepare for the financial impact of the VAT reverse charge. Updating their model for the changes to VAT cash flows in advance of October 2020, and ensuring that the business will still be able to meet its obligations when payments are received net of VAT, can help suppliers to ready themselves for the impact of the new rules. This exercise will enable businesses to decide whether a change between monthly and quarterly VAT returns would be beneficial.

As well as putting their own plans in place for the new VAT rules, businesses should take time to consider the wider supply chain picture. While large organisations are likely to have the resources and capacity to prepare for the changes in good time, smaller subcontractors may struggle to do so. If they fall into financial difficulties, this could cause disruption further up the supply chain. Main contractors should therefore take steps to ensure that key subcontractors are aware of the changes, know how to implement them and understand how they could affect their cash flow, in advance of their introduction.

The Government’s decision to delay the introduction of this VAT reverse charge is welcome news for the construction industry, and businesses should seize the opportunity to prepare. By ensuring that accounting systems are updated and ready to implement the change, understanding the impact on their cash flow and ensuring that key suppliers have done the same, businesses will be able to navigate the new rules smoothly.

Article submitted by Sarah Barron, VAT senior manager at accountancy firm, Menzies LLP.

If you would like to read more articles like this then please click here.

The post VAT reverse charge: cash flow considerations appeared first on UK Construction Online.

Welsh minister announces Innovative Housing Programme

The Welsh Housing and Local Government Minister, Julie James, announced the allocation of £30M to innovative housing projects in Wales as part of a £90M Innovative Housing Programme fund to test new approaches to social and affordable housing.

One of the projects to receive a proportion of the funding includes the construction of 76 homes in Ruthin by the ClwydAlyn housing association which have the potential to produce a net whole life carbon expulsion figure of zero, with the use of renewable energy offsetting any carbon produced in the building process. These homes will feature air source heat pumps, solar power, and intelligent batteries, meaning that the cost of heating and lighting is predicted to be less than £80 per year.

In addition to this, a project to deliver 17 homes in Chepstow, Monmouthshire, for first time buyers, by the local housing association will receive a proportion of the £30M fund, as will a project in Cardiff to construct 214 low carbon homes which will be a mixture of both council housing and market housing.

And finally, an amount of funding will be designated for the Swansea Council to aid in the construction of 25 new homes to the ‘Swansea Standard’, which includes a low carbon, energy efficient specification with solar panels, designed to achieve low running costs for tenants.

Minister James stated: “We face serious challenges in Wales, in terms of responding to the climate emergency and also delivering more affordable housing. This programme offers us the chance to develop homes with low fuel bills to tackle fuel poverty, homes designed and built with a low carbon impact in mind, and homes that can evolve with their households.

“We have an opportunity to deliver affordable, high-quality homes that meet all these challenges, which reduce the impact of housebuilding on the environment, and that can be built at scale to meet the needs of our communities.

“Good quality, beautiful houses are so important to people’s lives. I look forward to seeing these projects develop and to seeing the finished builds become homes.”

If you would like to read more articles like this then please click here.

The post Welsh minister announces Innovative Housing Programme appeared first on UK Construction Online.

Transport Secretary makes pledges at Conservative Party Conference

At yesterday’s Conservative Party Conference in Manchester, the Secretary of State for Transport, Grant Shapps, made a lengthy speech regarding infrastructure improvements and environmental targets, specify spending amounts and clarifying his priorities for government spending.

The Transport Secretary specifically stated: “We are driving the modernisation of our country’s infrastructure. As is evident here in the North West. From improving the M60 here in Manchester to tackling congestion and unlocking new homes in Preston. And in the North-East, I know how Ben Houchen is working hard to deliver a new Tees crossing.

“Across the country, our road building plan will reduce journey times, drive local growth and cut carbon emissions. We are also improving local bus links and today we are setting out our £220M package to improve services.

“When it comes to railways, I could try to impress with the record amount we are investing, that is £48Bn over five years, whilst pushing ahead with Northern Powerhouse Rail. But, as a frustrated commuter myself, I know what passengers really want is for the trains to simply run on time. It is why one of my first acts as in this job was to prioritise punctuality.”

Secretary Shapps continued to say: “As we improve our infrastructure, we must protect our planet. As Conservatives, we know the route to sustainable living is through stronger environmental protection, new technology and the market. Consider the acceleration in electric car use, for example.

“As you may know, we have already committed to ending the sale of new petrol and diesel cars by 2040. However, if we’re to become the world-leader in green technology, we must always be looking to expand our ambitions.

“I would therefore like to see government look again at the 2040 target, and thoroughly explore the case for bringing this date forward. The Government’s advisory Committee on Climate Change has said 2035 is a date for which we should aim.”

If you would like to read more articles like this then please click here.

The post Transport Secretary makes pledges at Conservative Party Conference appeared first on UK Construction Online.

New laboratories built at Keele University

The construction contractor G F Tomlinson have recently completed delivery of a new state-of-the-art laboratory building for the Natural Sciences Department of Keele University in Staffordshire.

Construction began on the development in August 2017 at a cost of £13M as part of the university’s £42M investment into their Faculty of Natural Sciences’ facilities.

The building features various facilities for a range of sciences and humanities subjects including new chemistry and pharmacy wet laboratories; flexible dry laboratories for geography, geology, environment, forensic science and life sciences; laboratories for physics and astrophysics; and IT labs for mathematics and computer science.

Furthermore, the development will feature breakout social learning spaces, open plan teaching areas, research areas, and also IT rooms.

The new building links to the Lennard Jones Building and is situated next to the Dorothy Hodgkin Building after having been constructed through Building Information Modelling (BIM) Level 2 which is a design co-ordination process used for creating and managing digital design information.

The Managing Director of G F Tomlinson, Andy Sewards stated: “We are very pleased that works have now completed on the Central Science Laboratories at Keele University – further enhancing the establishment’s reputation and improving the learning experiences of its students.

“There is already excitement for the building to open, and we are positive it will vastly benefit the innovative research that already takes place at the University. Here at G F Tomlinson, we regularly complete high-quality developments across a range of sectors, and this project signals yet another successful scheme within our higher education portfolio.”

The Pro Vice-Chancellor and Executive Dean of the Faculty of Natural Sciences, Professor Jonathan Wastling added: “These new facilities will provide excellent learning spaces and state-of-the-art equipment for our students, giving them access to some of the best laboratories and science teaching environments in the country.

“I am delighted that the University will benefit from the transformational teaching spaces, especially during our 70th anniversary year, cementing Keele’s commitment to collaborative and interdisciplinary working. The new landmark development will facilitate practical classes and student learning, as well as allowing the University to further develop its world-class research.”

If you would like to read more articles like this then please click here.

The post New laboratories built at Keele University appeared first on UK Construction Online.

£10M available for companies in low carbon heating invitation

The Scottish Government have created a £30M fund for businesses and technology companies to provide an innovative low carbon solution to household heating.

In accordance with the Low Carbon Infrastructure Transition Programme (LCITP), the Scottish Government are encouraging companies to develop technology and devise methods that will reduce the amount of carbon emissions which Scotland produces.

The programme is run in partnership with the Highlands and Islands Enterprise, Scottish Enterprise, Scottish Futures Trust, and various specialists in a the low carbon sector.

The most recent fund, named the ‘Scottish Low Carbon Heat Funding Invitation’, encourages companies to devise a solution to inefficient household heating by offering successful companies financial assistance for up to 50 per cent of the total eligible costs of a capital project, up to a maximum of £10M.

Scotland’s Energy Minister, Paul Wheelhouse stated: “It is estimated that Scotland’s homes are responsible for the emission of 6M tonnes of harmful carbon dioxide into our atmosphere every year, 15 per cent of all emissions.

“In order to meet Scotland’s ambitious proposed climate change targets, we estimate that nearly every Scottish home – unless already on a renewable heat supply – will need to have a change to its heating system by 2045, if not before.

“The Scottish Government is already making inroads to that target, by committing to ensuring that all new homes use renewable or low carbon heat by 2024, but we also want to create an environment where existing homes transition to renewable solutions as well.

“The problem is too big for the government to tackle on its own, so we are tapping into the significant expertise and talent that exists within Scotland – giving people the means to take the initiative and effect change through deployment of innovative, low carbon approaches to heating.

“By taking this approach we’re also supporting jobs, building skills, and ultimately creating end products with an environmental and social benefit.”

According to government research, 15 per cent of Scotland’s total carbon emissions, measuring at 900,000 tonnes of carbon dioxide, was produced by the residential sector in 2017.

If you would like to read more articles like this then please click here.

The post £10M available for companies in low carbon heating invitation appeared first on UK Construction Online.

Infrastructure for housing development

Hitting the million homes development mark will require industry to work together. What sort of infrastructure is needed before housing developments begin and what can be done to improve this to accelerate delivery?

Ian Nicholson, CEEQUAL & infrastructure, BRE, comments:

The key thing for me about the housing infrastructure fund, is that it is showing a glimpse of some joined-up thinking. If implemented correctly, it will enable a systems thinking approach to be used.

For so long housing developments have been agreed with little consideration for the wider infrastructure needs. This predominantly leads to more congestion and resulting air pollution on our roads. It also manifests itself in the wider transport system where we hear many stories of train overcrowding. Then we need to consider is the capacity of our water, sewerage and energy systems too.

New houses must be planned in conjunction with all sectors of infrastructure to ensure a system-wide approach to infrastructure and housing solutions so that they work seamlessly for home occupants. Otherwise the result will be worse air quality, longer journey times and over-stretched utility networks.

So, if we are to deliver one million new homes then we will need to deliver even more elements of new or substantially improved infrastructure, and this takes resources both human and physical. With so many major infrastructure projects underway, finding the right number of skilled people to work on projects will be a major challenge. From an environmental perspective the infrastructure sector is one of the largest resource intensive industries. Building even more means that we need to get even smarter with our resource use. This is where new technologies can come to our assistance to help us build more smartly and more quickly with less people.

BRE’s solutions and services can assist in helping industry to understand how to grapple these issues, whether it be BREEAM Communities to help make the most of a new community, to CEEQUAL our infrastructure standard; to Home Quality Mark for new Homes. Together, these solutions can help make our new homes and the infrastructure they rely upon, better for us all and our planet.

If you would like to read more articles like this then please click here.

The post Infrastructure for housing development appeared first on UK Construction Online.

Interest free loans available to Scottish housing associations

The Scottish Government have reported the recent success of their ‘Fire and Carbon Monoxide Detector Loan Scheme’ which allows social landlords, such as housing associations, to apply for interest free loans in order to upgrade their properties to new Scottish housing standards.

The recent change to housing standards declares that every home in Scotland must have smoke alarms fitted in each living room/lounge and each hallway/landing, while kitchens must possess a heat alarm and any space with a boiler must possess a carbon monoxide detector.

The Scottish Housing Minister, Kevin Stewart stated: “We want to improve fire safety in homes across Scotland and we are clear that one death from residential fires is one too many.

“It is important social landlords take action to meet our improved safety standards. Our loan scheme means they can start this important work right now and spread the cost.

“Everyone deserves the same high level of protection whether they own or rent from a private or social landlord.”

The new housing standard was launched in June, coming into full force in February 2021, and is predicted to make approximately 19,000 Scottish homes safer with 23 applications for the new loan having been made by social landlords.

Applications will be allocated amounts of the £13M loan fund, with the first application having been made by the Orkney Housing Association, who have now set about upgrading their 545 homes.

The Director of Finance and Asset Management at Orkney Housing Association, Anne Fletcher added: “We are delighted to be the first Registered Social Landlord to receive this loan funding to upgrade our existing smoke alarm systems to meet the new standards in 545 homes to ensure the safety of our tenants in our properties.

“Work has now begun and we aim to have all our properties fully compliant with the new Fire Safety Regulation by December 2020.  By obtaining access to these funds it enables this vital work to be done whilst maintaining affordable rents.”

If you would like to read more articles like this then please click here.

The post Interest free loans available to Scottish housing associations appeared first on UK Construction Online.