WILL THERE BE AN IMPACT ON MY CASH FLOW?
The VAT Reverse Charge will have two impacts on your cash flow
First, if you are a supplier impacted by this change you will no longer receive the VAT element of an invoice. While this means you are no longer responsible for collecting VAT for HMRC, you will no longer have the cushion of that money in your business. In effect, this will reduce your revenue by up to 20%.
Second, you will still have to pay the VAT element on any materials you purchase. If you submit your VAT Returns & Payments quarterly, this means cash out of your business for months on end. The changes to the VAT reporting may make you a net reclaimer of VAT which entitles you to move to monthly returns. You will need to do this by September 2020.
As with any substantial change, there will be a period of volatility which makes ensuring a strong cash flow is maintained becomes a primary importance. You might also want to consider Bad Debt Protection, especially if your contract is not with the main contractor.