Identification of a £3m saving on annual VAT payments

The issue

We suggested a review of VAT payment and accounting procedures to a major construction industry client. The company operated an efficient accounting system, had passed yearly VAT inspections and considered that VAT payment and compliance was not a major area of risk or opportunity for the business. However, PwC experience in this sector had shown that construction industry clients of this type, large players with multi-site locations and numerous sub-contractors, often have hidden VAT compliance issues and opportunities for improving cash flow. The company agreed to our undertaking a review.

Our approach

Our initial activities centered on ways to unlock the company’s VAT cashflow; annual VAT through-put on input and output tax was circa £500m. We approached the issue by undertaking a detailed review of procedures and close down dates, sampling and retrospective file interrogations. We used a team of VAT specialists which included a colleague with audit experience to complement the tax practitioners’ skills. Our analysis revealed that the company’s practice of closing down ledgers 5 – 6 days after period end, the large volumes of data being processed, its multi-site locations and numerous authorisations required, were leading to delays in recovering VAT input tax on expenditure, especially on sub-contractors.

The outcome

We found clear indications that the client was missing around £3 million on average of tax recoveries at each VAT quarter end. PwC have helped the company gain cashflow advantage, enhance their procedures and comply with Revenue & Customs regulations as well as gaining one-off £3 million cashflow.

The lead PwC partner on this project was David Moore. Contact David on 020 7804 5590 to find out what PwC can do for your company.