What does the new VAT Reverse Charge mean for your business?

12th March 2021

From the 1st March 2021, the government is changing how VAT works for Construction businesses. This will mean changes to many businesses, especially in terms of cash flow and cash safety nets.

At itsettled, they’re passionate about empowering business owners by providing leading thought pieces and guides to dealing with your money as a business. Here’s otheir take on the new VAT Reverse Charge, and what you as a business owner can do. 

The VAT Reverse Charge was due to be implemented last year, but due to COVID-19 and Brexit, the Reverse Charge will now be implemented from the 1st March this year. 

The new VAT Reverse Charge simply means that the end-customer purchasing construction services or materials will now have to account for the related VAT themselves, instead of the supplier. This VAT will now be paid directly to HMRC. This reverse charge will apply throughout the whole supply chain, until it reaches the end customer who is receiving the service or materials, who is not part of the construction. You can find more information on the government website here.

Some businesses may find that this new VAT Reverse Charge will affect their cashflow, as they will no longer be able to use their ‘VAT pot’ as a safety net for when money is short. If you already have a problem with late payment and negative cashflow, unfortunately these issues will be accelerated by the new VAT Reverse charge. 

So, what can you do to improve your cashflow and ensure that you are not negatively impacted by the new reverse charge?

It is vital that you have a good credit control process in place. If you are not following up on unpaid invoices in a timely manner, or are invoicing incorrectly, now is the time to change that. itsettled can help - they are the first of our kind in the UK, providing an effective and proven automated credit control process. It’s so simple that any of your team can use it, and it only requires a few minutes of your time each day. Want to find out more about how it works click here.