Builder VAT situation unclear

[Chris S]

Our potential builder is not being clear about VAT.

He says he is not VAT registered but has to pay 20% VAT on labour through the CIS, hence has to charge us VAT. His quote added VAT to both materials and labour.

He generally works on smaller jobs but has recently completed a major rebuild nearby (I suspect somewhere around £200k) and will hopefully do ours at ~£86k + VAT (assuming all is legit).

Hence we figured he must be VAT registered assuming his business is above board. But when I asked for his VAT number he said he's not registered and doesn't have to be.

So can he charge us VAT, pay it to the gov via CIS and not be VAT registered???

He also mentioned paying via his unique tax reference (UTR) but I don't think that is relevant.

Thanks very much

 

Edit: this is for an extension not a new build

Edited July 1, 2019 by Chris S
Clarification of extension not new build

[ProDave]

Your builder is indeed confused.

 

CIS is the "Construction Industry Scheme"  The 20% deduction he makes under the CIS scheme is NOT VAT it is income tax.  

 

I am enrolled under the CIS scheme and if I do work on a new build as a subcontractor, the contractor deducts 20% income tax from what he pays me. And then on my tax return I declare that amount as CIS tax paid. The contractor needs to know my UTR (unique tax reference) so he can say who the CIS tax has been deducted from.

 

So the CIS bit is completely irelevant to you. 

 

If the builder is not VAT registered he will have no choice but pay the VAT on materials with no way of recovering that, so it is probably better for you to buy the materials so you can eventually claim the VAT back, and fot your builder to just charge you labour only which because he is not VAT registered will not have any VAT added.

 

But it does sound very odd indeed with a turnover in excess of £200K that he claims not to be VAT registered.

[Russell griffiths]

Is this a new build or an extension 

your figure of £86 grand is confusing the issue. 

If your builder is not vat registered he can’t charge you vat, no matter what he thinks. 

 

[Chris S]

56 minutes ago, ProDave said:

Your builder is indeed confused.

 

CIS is the "Construction Industry Scheme"  The 20% deduction he makes under the CIS scheme is NOT VAT it is income tax.  

 

I am enrolled under the CIS scheme and if I do work on a new build as a subcontractor, the contractor deducts 20% income tax from what he pays me. And then on my tax return I declare that amount as CIS tax paid. The contractor needs to know my UTR (unique tax reference) so he can say who the CIS tax has been deducted from.

 

So the CIS bit is completely irelevant to you. 

Thank you ProDave. That is what we thought and its helpful to have you confirm it. Unfortunately paperwork is not his strong point.

[Chris S]

50 minutes ago, Russell griffiths said:

Is this a new build or an extension 

your figure of £86 grand is confusing the issue. 

If your builder is not vat registered he can’t charge you vat, no matter what he thinks. 

 

Thank you Russell. Its an extension (post edited). £86 grand + VAT is his quote.

[Russell griffiths]

So being an extension you cannot claim it back either. 

Thats a bugger. 

[Temp]

+1

 

Only new houses are zero rated. Conversions are 5% rated,. Pretty much everything else is standard 20% rated. The exception being houses that are being renovated after having been unoccupied for a number of years  (and are still unoccupied when the work is started) there are different rates for those.

 

He says he is not VAT registered ….snip... His quote added VAT to both materials and labour.



 

He shouldn't charge you VAT if he isn't VAT registered. However that doesn't necessarily mean he should/must reduce his total bill, he just shouldn't include an item for VAT as he's not going to be sending that to HMRC.   What he charges is up to him at the end of the day.

 

What were other quotes like? My guess he quoted £86k + Vat knowing that the "vat" was going in his pocket as profit. In other words it allowed him to quote less than other builders that are VAT registered. That's a perk of not being VAT registered.

 

One question I have... I think the VAT threshold is £85K? So does he have to register if he does your job? Perhaps someone else knows.

 

 

 

 

 

 

 

 

 

 

 

 

 

[Russell griffiths]

If he has gone over his vat threshold and not registered he could be in trouble. 

[nod]

4 hours ago, Chris S said:

Our potential builder is not being clear about VAT.

He says he is not VAT registered but has to pay 20% VAT on labour through the CIS, hence has to charge us VAT. His quote added VAT to both materials and labour.

He generally works on smaller jobs but has recently completed a major rebuild nearby (I suspect somewhere around £200k) and will hopefully do ours at ~£86k + VAT (assuming all is legit).

Hence we figured he must be VAT registered assuming his business is above board. But when I asked for his VAT number he said he's not registered and doesn't have to be.

So can he charge us VAT, pay it to the gov via CIS and not be VAT registered???

He also mentioned paying via his unique tax reference (UTR) but I don't think that is relevant.

Thanks very much

 

Edit: this is for an extension not a new build

I’ve been vat registered In the building industry for over three decades 

It can be quite confusing with different or zero rates for similar

types of buildings

One thing is crystal clear

If you are not vat registered You can not charge vat at any rate on Labour He will include vat in his quote for material But if he is not vat registered he will be unable to claim this back

Hence him trying to recoup it from you 

 

The 20% CIS is nothing to do with you 

It is tax that he should deduct from subcontractors and pay in at the end of each month to HMRC  

 

Some of the smaller builders can’t be bothered with all the work being vat registered entails

But that shouldn’t cost you  

[Thedreamer]

As others suggest this sounds very strange @Chris S

 

But considering all possibilities.

 

The job he worked on before, was it £200,000 worth of his own work,  could he have been a subcontractor for somebody else and just been supplying labour and been the face of the build with tax deducted under the CIS scheme by the main contractor.

 

If he is the main contractor for your job then CIS is irrelevant. Certainty should not be VAT on his labour if he claims he is not VAT registered but in theory for the materials he could be stating that he has prices up the materials and these included VAT but not charging VAT himself.

 

Sensible VAT planning would be going with a contractor which is not VAT registered (but not one who states he is but then charges VAT!). Often this can be achieved where contractors expect you to buy the materials and just charge labour, if a contractor is keen to stay under the threshold this could be attractive work for them. Some builders such as joiners work in pairs for big jobs but do plenty of work separately to ensure they are not working as a single entity and go over the VAT threshold as a partnership.  Think about this carefully at this stage and you could save thousands.

 

The bottom line with materials is that at some point you will suffer VAT. Again if you can get a non VAT registered builder on side they could provide the list of materials and prices they would expect to pay. If they have good working relationship with the building merchant then prehaps you might be able to get ok rates.

 

Might be worth getting back to clarify the position as he could be good builder(?) but just doesn't understand VAT and tax etc and suggest he speaks to his accountant. 

 

Probably worth getting some additional quotes as well.  

 

[Chris S]

Thanks for all your responses. They confirm nicely what we understood so thats helpful when we discuss with him again tomorrow.

 

We want to work with the guy if we can. He's an older guy who we get on well with and understand is a very good builder but not so good with the paperwork side of things. I think he genuinely doesn't understand VAT and leaves it to his accountant, but equally we don't want to pay VAT on labour if he's not VAT registered.

 

At £86k ex VAT our build will push him over the threshold unless he wants us to pay for materials ourselves and/or pay a business partner.

 

We'll find out tomorrow!

[Chris S]

12 minutes ago, Thedreamer said:

As others suggest this sounds very strange @Chris S

 

But considering all possibilities.

 

The job he worked on before, was it £200,000 worth of his own work,  could he have been a subcontractor for somebody else and just been supplying labour and been the face of the build with tax deducted under the CIS scheme by the main contractor.

 

If he is the main contractor for your job then CIS is irrelevant. Certainty should not be VAT on his labour if he claims he is not VAT registered but in theory for the materials he could be stating that he has prices up the materials and these included VAT but not charging VAT himself.

 

Sensible VAT planning would be going with a contractor which is not VAT registered (but not one who states he is but then charges VAT!). Often this can be achieved where contractors expect you to buy the materials and just charge labour, if a contractor is keen to stay under the threshold this could be attractive work for them. Some builders such as joiners work in pairs for big jobs but do plenty of work separately to ensure they are not working as a single entity and go over the VAT threshold as a partnership.  Think about this carefully at this stage and you could save thousands.

 

The bottom line with materials is that at some point you will suffer VAT. Again if you can get a non VAT registered builder on side they could provide the list of materials and prices they would expect to pay. If they have good working relationship with the building merchant then prehaps you might be able to get ok rates.

 

Might be worth getting back to clarify the position as he could be good builder(?) but just doesn't understand VAT and tax etc and suggest he speaks to his accountant. 

 

Probably worth getting some additional quotes as well.  

 

Thanks Threadreamer. I hadn't read this post before my last one so this confirms our plan just nicely!

[Thedreamer]

5 minutes ago, Chris S said:

Thanks Threadreamer. I hadn't read this post before my last one so this confirms our plan just nicely!

 

No problem. I'm accountant so we deal with all sorts of clients.

 

Understanding matters such as VAT are just as important as being able to do work yourself.

 

 

 

 

[redtop]

the bit i dont understand is why he would quote 86K+VAT.  If he isnt VAT registered and not good on paperwork stuff then he could have just priced up the job using online builders merchents prices which are often quoted ex VAT.  in which case his quote would be £xx labour plus £xx materials + VAT on the materials.  WHy would he put VAT on materials and labour