Non main contractor - zero vat ?

[Jimbouk]

Invoicing by main builder going fine, everything zero rated.

 

However I am using another contractor for a piece of work outside the scope of the main contract. They are not sub contracting to the main builder, nor do they wish to. However they want to invoice me with vat at 20% on labour and materials, saying I can claim it back at the end of the build ( I will be doing this on some of the materials I am buying direct fine). But can I claim back the vat on their labour element?

 

I fear not.... anyone advise?

[Oz07]

No you can't. Tell them to zero rate

[jack]

Agree - labour is either zero rated at time of supply or you're stuck with it.

[Vijay]

I agree with above based on my post and the helpful replies here http://forum.buildhub.org.uk/ipb/topic/2646-zero-rated-vat/

 

[AliG]

As a basic rule of thumb if you are buying materials you should pay VAT and then you can claim it back, but if you are buying something on a supply and fit or labour and materials contract then it should be zero rated. If it isn't by mistake you cannot claim it back later. I had some real arguments with suppliers to make them zero rate things.

[Trw144]

Make sure you don't pay the vat as if the vats wrong, then the cost of it will will fall on your lap of its turned down on your claim.

[Temp]

22 hours ago, Jimbouk said:

However they want to invoice me with vat at 20% on labour and materials, saying I can claim it back at the end of the build

 

+1 to other replies.

 

1) You cannot reclaim VAT that you pay on labour (in error).

2) You cannot reclaim VAT on materials that anyone else has purchased. The VAT invoice must be in your name.

 

They MUST zero rate labor to you. They must also zero rate the materials because in the case of multiple supply (eg labor and materials) everything must be rated at the lowest rate. Labour is zero rated so they must zero rate the materials as well.

 

They can reclaim the VAT they paid on materials. It might help to give them a certificate. It's all in VAT 708.. 

 

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction

 

If you can't find the relevant sections let me know and I'll dig them out on Monday.

 

PS: If the contractor isn't VAT registered but still puts VAT on the bill that's illegal. In such cases they can't reclaim the VAT they paid on materials which might be why they are reluctant to zero rate. Moral - Check all contractors are VAT registered. 

 

Edited May 27, 2017 by Temp

[Temp]

If they are happy to zero rate labor but not materials then the only option is for you to buy the materials (receipt in your name) and "free issue" them to the contractor. I ended up doing that for our windows to help the builders cash flow.

[warby]

I agree wholly with Colin (Temp). I would add there are ways of recovering vat on fees and hire if those services are 'employed' by vat registered contractors who you subsequently pay.

As an example if your timberframe supplier contracts with an architect then the fees for your house can be charged to you without vat being added. This would similarly apply to say crane hire.

It is very important that a self builder puts contracts together that allows this loophole to be legally exploited.

 

When employing a non vat registered contractor you as the self builder must ALWAYS pay for the materials against an invoice addressed to you by the materials supplier. e.g. Plumbers and Electricians normal practice is to contract on a  supply and fit basis, this is ridiculous to a self builder, if they are not vat registered. Arrange that their labour charge is increased to reflect that that they will lose the material profit element; this prevents them being out of pocket.

[Jimbouk]

Thanks for all the responses. I fear I wil just have to absorb the hit on this, thankfully it relatively small!

[WDF]

Related to this thread but just want to double check.... our project manager (on a new build) is sourcing supply items such as sanitary ware and windows from third parties on our behalf but saying we have to claim back the VAT at the end of the project and only the prime contractor can zero rate goods.

 

She is presumably paying VAT on the goods to the suppliers,, should she then zero rate them when selling them onto us? She says she can't do that but I suspect its because she doesnt want to effect her cash flow while waiting for her VAT return. If that's the case I wouldn't mind her saying that is the reason but she is insisting its not legal.

[Jeremy Harris]

15 minutes ago, WDF said:

Related to this thread but just want to double check.... our project manager (on a new build) is sourcing supply items such as sanitary ware and windows from third parties on our behalf but saying we have to claim back the VAT at the end of the project and only the prime contractor can zero rate goods.

 

She is presumably paying VAT on the goods to the suppliers,, should she then zero rate them when selling them onto us? She says she can't do that but I suspect its because she doesnt want to effect her cash flow while waiting for her VAT return. If that's the case I wouldn't mind her saying that is the reason but she is insisting its not legal.

 

This won't work, I'm afraid.  To reclaim VAT you, personally, have to buy the goods or materials, in your name, and using your card, cash or whatever.  HMRC will not allow you to reclaim VAT from goods and materials purchased by another.  That person has to be VAT registered and and then supplies goods and services to you at zero rate.

Edited October 29, 2017 by JSHarris

[warby]

There is a simple rule of thumb for a new build:

a. any contractor who is vat registered MUST invoice you with zero vat for all materials, labour, hire fees, etc..

b. For any contractor who is NOT vat registered then you MUST purchase, be invoiced for and pay for all materials including paying the vat on those invoices.

 

At the end of the project you complete a vat return to claim back the vat element you have previously paid out but VAT on some charges is not recoverable, e..g on fees, hire charges, etc.

If you organise your contracts carefully most of the irrecoverable VAT can be avoided. You do this by arranging for a vat registered contractor to contract and pay for fees, hire, etc. You then get invoiced with zero vat.

[PeterW]

I would steer clear of this approach - the PM will have VAT rated and non-VAT rated services on the same invoice as she should be recovering the VAT on the sanitary items but not her services. 

 

Isn’t this the same PM who wants to retrospectively add VAT to all her old invoices..??

 

sounds like she needs a new accountant ....... 

[WDF]

Thanks as always everyone for your wise words.

 

Yes she definitely needs help on the finances!

 

The invoices for the goods are separate from the project management invoices so she should be zero rating them. I think she is trying to protect her cash flow which is understandable. If she told me that I would understand and accommodate but she is saying she can't zero rate supplies to me.... frustrating as I will have to go through the painful task of reclaiming at the end of the project.

[Jeremy Harris]

2 hours ago, WDF said:

Thanks as always everyone for your wise words.

 

Yes she definitely needs help on the finances!

 

The invoices for the goods are separate from the project management invoices so she should be zero rating them. I think she is trying to protect her cash flow which is understandable. If she told me that I would understand and accommodate but she is saying she can't zero rate supplies to me.... frustrating as I will have to go through the painful task of reclaiming at the end of the project.

 

 

If she buys the supplies, you cannot reclaim the VAT, so make sure that the orders are made by, and paid for, by you.  If a receipt has her name on it HMRC won't refund you the VAT.

[Gone West]

1 hour ago, JSHarris said:

 

 

If she buys the supplies, you cannot reclaim the VAT, so make sure that the orders are made by, and paid for, by you.  If a receipt has her name on it HMRC won't refund you the VAT.

I thought the VAT refund form allows the names of more than one claimant.

[Temp]

22 hours ago, WDF said:

Related to this thread but just want to double check.... our project manager (on a new build) is sourcing supply items such as sanitary ware and windows from third parties on our behalf but saying we have to claim back the VAT at the end of the project and only the prime contractor can zero rate goods.

 

She is presumably paying VAT on the goods to the suppliers,, should she then zero rate them when selling them onto us? She says she can't do that but I suspect its because she doesnt want to effect her cash flow while waiting for her VAT return. If that's the case I wouldn't mind her saying that is the reason but she is insisting its not legal.

 

She is wrong about "only the prime contractor can zero rate goods". An electrician you hire should also zero rate his labor and materials/wire to you. However that doesn't mean she can zero rate goods for the reason below.. 

 

8 hours ago, warby said:

There is a simple rule of thumb for a new build:

a. any contractor who is vat registered MUST invoice you with zero vat for all materials, labour, hire fees, etc..

 

I would normally agree but...  This is true of builders, bricklayers, plumbers, electricians etc who are carrying out zero rated work on a qualifying building. Any materials they supply must also be zero rated. However the services provided by Architects and Project Managers aren't zero rated, so I believe she must charge VAT on the labor and materials she supplies to you. 

 

VAT 708 doesn't cover this situation explicitly but it does have some relevant sections. 

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction

 

Quote

2.2 Building materials
Retailers and builders’ merchants charge VAT at the standard rate on most items they sell.
Builders, however, charge VAT on ‘building materials’ that they supply and incorporate in a building (or its site) at the same rate as for their work. Therefore, if their work is zero-rated or reduced-rated, then so are the ‘building materials’. However, some items are not ‘building materials’ and remain standard-rated.

Further information on this can be found in Sections 11 and 13.

 

Quote

13.1  Why is the concept of ‘building materials’ important?
If you are a contractor supplying zero-rated or reduced-rated services described in this notice, the ‘building materials’ you supply with those services and ‘incorporate’ in the building (or its site) will also be zero-rated or reduced-rated. Other articles are normally standard-rated - see section 11.

 

 

But unfortunately she isn't a contractor supplying zero rated services to you. Her project management services are standard rated.

 

Possible solutions:

1 hour ago, PeterStarck said:

I thought the VAT refund form allows the names of more than one claimant.

It does. Box 2 says..

Quote

If more than one claimant, title and full name of other claimant(s)

I think if you want to put the project managers name in this box you will need the original invoices that suppliers gave your project manager. Has she already used them to reclaim the VAT she paid?

 

If she has already reclaimed the VAT on invoices she has paid then the only way around the problem I can see is for her to effectively sell the items to you at cost (inc VAT). She can then give you an invoice in your name which you can submit with your VAT reclaim. 

 

As the value of your reclaim is significant it might be worth paying for professional advice on this. The whole VAT issue for self builders is a mess and I/we might well be wrong! 

 

 

 

 

 

 

Edited October 30, 2017 by Temp