UK law currently requires most companies to pay VAT within 30 days of the end of the VAT quarter. The Financial Times recently reported a proposal to extend the payment period for smaller companies, suggesting that it could rise to 90 days. The proposal is intended to improve cash flow for small companies, who are finding it especially hard to get bank finance.
The proposal has sparked debate. The Federation of Small Businesses and the Institute of Directors, both of whom have significant membership from the construction and engineering industry, agree that the proposal should be explored. There is even a petition on the 10 Downing Street website supporting the extension.
Over the years there have been many calls to help the construction industry by reducing various aspects of VAT, usually focussed on house-building (for example, last year’s RICS position paper). The concern has to be that such a measure would reduce government funds without addressing the fundamental economic problems, which are a need for improved access to bank credit and stimulus to increase construction activity. Even if further action needs to be taken on VAT, the construction and engineering industry may prefer a universal reduction in VAT from 15% or reductions targeted at specific areas of the industry, such as materials.
It remains to be seen if anything comes of this latest proposal. If you support it, why not add your name to the petition? At the moment it has fewer signatures than the petition to make August 1 an official “Yorkshire Day” public holiday.
In the meantime, construction companies with immediate concerns about their tax position should contact the HMRC business payment support service, which allows businesses to spread tax payments over longer periods.