Welcome announcements from the Budget

  31 OCTOBER, 2018      INDUSTRY INSIGHTS
Welcome announcements from the Budget

In light of the Brexit challenge and the deficit, big changes to the UK’s taxation system were not expected. That said, there have been a number of announcements that will be welcomed by working people, businesses and the construction industry.

First, the increase in the personal allowance and higher rate bands to £12,500 and £50,000 respectively have been brought forward to April 2019. Combined with the increase in the Living Wage, this will give millions of people a boost to their net income just as the UK leaves the EU, providing a degree of stimulus to consumer spending power.

Second, the two year increase in the Annual Investment Allowance as of 2019 from £200,000 to £1m per annum will encourage people to invest in fixed assets. This will reduce their tax bill by allowing 100% writing down allowances in the year of purchase on the additional £800k.

Third, there’s finally a tax incentive to invest in new non-residential property with the announcement of a new structures and buildings allowance. This will allow a 2% per annum writing down allowance for non-residential construction contracted on or after the 29th October.
 

For Novus, this means we’ll be looking at further fixed asset investments to drive productivity. We’ll also be speaking to our clients to ensure they’re aware of the opportunity to get tax relief on non-residential property construction. In addition, the personal allowance increase will reward our hard working staff with more post tax income, which is great news.

 

Neil Washington, Novus Finance Director

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Being stricter on bad payers

BEING STRICTER ON BAD PAYERS

Neil Washington, Finance Director at contractor Novus Property Solutions, explains how clients and the industry should work harder to enforce better payment practices to strengthen the SME supply chain The obligation on firms to disclose their payment terms came into effect in 2017 but judging by the headlines so far in 2019, many industries are still struggling to meet best practice. The construction industry is not alone, yet the subject of late payments in the sector has very specific ramifications for its long-term health. You can see how the industry got itself into this state. Many of the largest listed contractors operate on extremely tight margins and must satisfy investors in the City. Paying subcontractors promptly can often fall down the list of priorities, either deliberately or not. At Novus we’ve strived to reduce our payment terms because of the issues late payment causes. We now take only 26 days to pay subcontractors on average and this puts us in the top five quickest among the industry’s largest 100 contractors ranked by Construction News, where the average time to pay is 43 days. We don’t have any different accounting methods or invoicing systems, it’s purely in our culture to pay our subcontractors on time. We’re a family-owned business and that plays a part in cultivating values like this. But the construction industry is a varied beast and each contractor has different internal pressures. In some cases, larger contractors will use cash which is due to be paid to their supply chain as working capital and without pressure from clients to change this, it could carry on for a long time. While late payments must now be recorded and published, more could be done to accelerate change. The issues it causes Main contractors and their supply chains have a symbiotic relationship. Paying on time and ensuring that subcontractors can maintain good cashflow means that they will be more likely to accept more work and do a good quality job. It’s also rare that a subcontractor will only be working for just one bad payer at any given time. This can so drastically affect their cashflow that they risk going bust. The industry faces a huge skills shortage and access to labour, particularly specialist skills, is increasingly difficult. Often these skills come from smaller businesses. A weakened supply chain drives up costs and results in longer project timeframes for clients. What can larger contractors and clients do? While most clients stipulate good payment terms when appointing a major contractor, very few follow this up during projects. We’d advocate a review of payment practice statistics as part of the bidding process and spot checks on payments during contract periods to ensure contractors are making good on their promises. It’s clear that public shaming may not be doing enough to push the industry and going against the curve like Novus has done can be difficult, particularly when your competitors aren’t doing much themselves. Direction from clients could initiate a huge change for the benefit of local businesses while reducing long-term construction costs.