Builder asking me to pay for materials cash to 'save VAT'?

[lb00]

Hi everyone,

 

I’m currently renovating my house and have an agreement with the builder for a price excluding materials. Since the carpenter, who is on site daily and doing most of the work, is a family friend, we agreed with the project manager to pay for materials separately. As a discount arrangement, the agreement was we'd pay for the materials at cost (no markup) upon presentation of receipts.

 

Recently, the project manager asked me to pay for materials—around £1,000 NET i.e. £1,200 GROSS—in cash instead of providing an invoice. He mentioned this would allow us to “save the VAT.”

 

However, he’s asking me to pay the GROSS amount, which includes VAT (£1,200). From my understanding, as a VAT-registered business, he will likely reclaim the VAT from HMRC in his VAT return.

 

This seems like double compensation for the VAT—once from my payment of £1,200 (including VAT) and again by reclaiming the VAT from HMRC.

 

What do you think about this situation?

Thanks for your advice!

[SteamyTea]

When you say 'pay cash', do you mean give him notes with no receipt in return?

[lb00]

8 minutes ago, SteamyTea said:

When you say 'pay cash', do you mean give him notes with no receipt in return?

Notes with an informal receipt that I paid the materials.

[SteamyTea]

3 minutes ago, lb00 said:

Notes with an informal receipt that I paid the materials.

Start looking for a new team.

If the company you are using is limited, check them, and the directors, out on the companies house website.

[ToughButterCup]

51 minutes ago, lb00 said:

.. He mentioned this would allow us to “save the VAT.”...

 

Rubbish.

Bid him Happy Christmas, and bye bye.

[lb00]

2 hours ago, SteamyTea said:

Start looking for a new team.

If the company you are using is limited, check them, and the directors, out on the companies house website.

 

2 hours ago, ToughButterCup said:

 

Rubbish.

Bid him Happy Christmas, and bye bye.

Thank you for your replies.

 

Just to make sure as perhaps I haven't been clear enough, I will be paying all the work with invoices by bank transfer. The issue above is only regarding the materials for which he has provided receipts and asked me to pay cash.

 

Am I correct in assuming the builder will claim the VAT back on those invoices for the materials he bought?The business is VAT registered. He has accounts with some of these suppliers, some other he has paid by credit card.

If his cost for the material is actually the Net price, as he is reclaiming VAT, but he is asking me to pay the gross with VAT even if I pay cash, then it seems to me he is recovering VAT twice, once from HMRC and once from me.

 

Thank you.

[mjc55]

you would be correct in your assumption!

 

He pays £1200 but gets £200 back from revenue - cost £1000

 

You give him £1200

 

£200 profit to him.

 

[Mike]

1 hour ago, lb00 said:

Am I correct in assuming the builder will claim the VAT back on those invoices for the materials he bought?The business is VAT registered.

Yes if he bought them, no if they fell off the back of a lorry.

 

It's also possible that he wants cash to avoid the revenue being visible in his accounts for some reason.

 

Ask for an invoice, buy the materials yourself, or go elsewhere. Preferably the latter.

[nod]

That is absolutely normal 

I really don’t understand this 

If you bought the materials yourself 

You would still pay the vat Unless the job is reclaimable 

Is he charging you vat on the labour 

[Susie]

Your saving the builders mark up on the materials. 
 

if he is ordering, possibly collecting, paperwork etc they all have a cost usually also 20% mark up but this will vary by builder. 
if you want to save money one option would be to get the materials your self and reclaim the VAT if your a new build. 


 

[torre]

12 hours ago, lb00 said:

informal receipt

This isn't for your benefit, it's basically a sign none of that money on the informal receipt is going through the builders accounts.

 

So the whole lot is cash that never goes through the builders books at all and he's avoiding tax and NI contributions on it while still reclaiming the VAT.

[Alan Ambrose]

>>> to avoid the revenue being visible in his accounts for some reason

 

Of course, one reason that small operators like customers to buy materials direct rather than have that ‘revenue’ going through the accounts is to stay below the VAT threshold of £90K. Perfectly legal and it gives them a price advantage in not having to charge customers VAT. Could that be true in this case? A lot of one man bands get a bit confused about VAT also.

[torre]

@Alan Ambrose that would be fair enough for the probably not VAT registered carpenter friend, but here it sounds like it's the builder and their PM (definitely VAT registered) issuing the 'informal receipts' and offering to 'save VAT'.

[Sparrowhawk]

@nod is right, but so is everyone else.

 

Require receipts, no cash payments, and keep records.

https://www.gov.uk/report-tax-fraud

[Alan Ambrose]

It’s possible the materials were ones in the builder’s inventory anyway, so they wouldn’t have an actual receipt - at least not for this job. There are, of course, a lot of overages from jobs, good materials removed from old refurb jobs etc which end up as a bonus for the builder.

[mjc55]

I think it is rather naive of anyone thinking that this is anything other than the builder not declaring to save money.  At least given what the original poster said.

 

Quote

Recently, the project manager asked me to pay for materials—around £1,000 NET i.e. £1,200 GROSS—in cash instead of providing an invoice. He mentioned this would allow us to “save the VAT.”

 

 

[ToughButterCup]

1 hour ago, Sparrowhawk said:

@nod is right, but so is everyone else.....

 

Warra a diplomat .... 

Lets all have pint on @nod tonight and send him the bill ex-VAT

[SteamyTea]

3 hours ago, ToughButterCup said:

Lets all have pint on @nod tonight and send him the bill ex-VAT

Can I also pocket the 10/pint reduction in alcohol tax that our Chancellor gave us.

[Temp]

Is this work being done on a house that is and has been empty for 2 or 10 years? Eg so that it qualifies for reduced VAT?

 

If not then I agree you will have to pay the VAT

 

You can't buy the materials without VAT yourself.

 

They can't buy the materials and sell them to you without VAT (if VAT registered).

 

Being VAT registered allows all companies to reclaim VAT. Next time you buy a dishwasher ask the shop if they will knock the VAT off and see how it goes 🙂

 

 

[lb00]

Thank you all for your replies.

I am more than happy to pay VAT on materials and that was how we settled at the start of the works. Builder gets materials, pays 1200 (1000 net + Vat), sends me receipts and I pay straight away the 1200. 

 

Now what he said is: "to save you the VAT give me the 1200 in cash instead of through bank transfer". 

I have no objection to paying the full 1200 and it is indeed what I expected and was prepared to pay. 

What I don't like is that he is taking me for a ride when arguing he will save me the VAT by paying cash.

The reason for this I guess is that he is getting the money for my materials in cash, issuing no invoice, and still reclaiming VAT on those materials. So he effectively paid for them the net (1000) whereas I pay 1,200 and he pockets the 200£.

That I am not liking at all as he is breaking the trust relationship.

 

Thank you.

[mjc55]

Just now, lb00 said:

Thank you all for your replies.

I am more than happy to pay VAT on materials and that was how we settled at the start of the works. Builder gets materials, pays 1200 (1000 net + Vat), sends me receipts and I pay straight away the 1200. 

 

Now what he said is: "to save you the VAT give me the 1200 in cash instead of through bank transfer". 

I have no objection to paying the full 1200 and it is indeed what I expected and was prepared to pay. 

What I don't like is that he is taking me for a ride when arguing he will save me the VAT by paying cash.

The reason for this I guess is that he is getting the money for my materials in cash, issuing no invoice, and still reclaiming VAT on those materials. So he effectively paid for them the net (1000) whereas I pay 1,200 and he pockets the 200£.

That I am not liking at all as he is breaking the trust relationship.

 

Thank you.

 

Exactly, I think this has been clear in what you originally posted, unfortunately others seem to have not read the thread and therefore answered something that has not been asked!