Paying for materials vs labour and VAT reclaim

[IanB]

I am trying to understand the best way to pay for materials and VAT reclaim. I ask after contacting Midsummer Wholesale to enquire about trade discounts. I was told unless you have a business number you can’t apply. As a self build/VAT reclaim that is a non starter

What are the best ways to differentiate between supply and install from the contractor. Specifically

 

1.      Could/should I be looking to purchase materials myself, invoice in my name and reclaim VAT. Then contractor is then charging labour only. My concern if contractors may use this steps to add a little profit for themselves. Most will be VAT registered and also get their trade discount so will be making their own purchase at the most favourable price for them

2.      Do I leave it to the contractor to buy materials from their favourite supplier and ask the supplier to put my name and address on the invoice – assuming that can be done – so I can pay for materials at the discounted price and reclaim the vat at the end of the project

3.      Just leave it to the contractor i.e. they purchase the materials needed for the job reclaim their VAT element and simply bill you for the supply and fit which is of course VAT free to me

 

I think the reason for me asking is to primarily to keep control of costs and moreover to not be overcharged. Of course the labourer needs to make a profit but I feel that this concept of VAT free for self builds gives them the opportunity to make a little extra tickle at my expense!

 

Thank you

[JohnMo]

You can buy materials from anywhere, just get a VAT receipt, places like B&Q (can be way cheaper for some things that trade outlets), you have to ask for a VAT receipt.

 

For best prices just shop around, trade account doesn't mean best prices, you can be royally ripped off. You can also get cash accounts with companies if you want, basically they have all your details you can haggle prices as they can see your buying history etc.

 

Some jobs it's just easier to leave contractors to quote for the job, if you find the quote acceptable, they get the job, leave them to source and do the job, then invoice less VAT.

 

24 minutes ago, IanB said:

opportunity to make a little extra tickle at my expense!

That's life, get on and don't over think it.

[Russell griffiths]

Cash flow 

if a contractor supplies a service and materials it’s zero vat

if you buy the materials you pay the vat and claim it back, this could be a long time before you get it back. 

[jack]

38 minutes ago, IanB said:

I am trying to understand the best way to pay for materials and VAT reclaim. I ask after contacting Midsummer Wholesale to enquire about trade discounts. I was told unless you have a business number you can’t apply. As a self build/VAT reclaim that is a non starter

What are the best ways to differentiate between supply and install from the contractor. Specifically

 

1.      Could/should I be looking to purchase materials myself, invoice in my name and reclaim VAT. Then contractor is then charging labour only. My concern if contractors may use this steps to add a little profit for themselves. Most will be VAT registered and also get their trade discount so will be making their own purchase at the most favourable price for them

2.      Do I leave it to the contractor to buy materials from their favourite supplier and ask the supplier to put my name and address on the invoice – assuming that can be done – so I can pay for materials at the discounted price and reclaim the vat at the end of the project

3.      Just leave it to the contractor i.e. they purchase the materials needed for the job reclaim their VAT element and simply bill you for the supply and fit which is of course VAT free to me

 

I think the reason for me asking is to primarily to keep control of costs and moreover to not be overcharged. Of course the labourer needs to make a profit but I feel that this concept of VAT free for self builds gives them the opportunity to make a little extra tickle at my expense!

 

I don't think there's an easy answer.

 

Trades often just buy at the last minute and so will buy materials wherever is in stock and most convenient. We had a few cases where we were paying for materials and were told that something was needed within the hour - not a great option when the best deals are online. Same when trades were buying on our behalf. They'd often just ring the first place they thought of, happily paying more because it wasn't their money they were spending.

 

In some cases, trade discounts are so high that it's cheaper to just pay the VAT. I specifically remember that our tiler was able to get tile trims for half the price we could find them anywhere. I think in that case we actually submitted his invoice from the supplier with our VAT reclaim and explained that it was accidentally in the name of the tradesperson. It was accepted.

In fact, we had one invoice where we bought in person, and the invoice had a completely random company's name on it. I assume the supplier just used the last name on the system or something. Either way, we explained the situation when reclaiming VAT and it worked.

 

I think the only way to get ahead of it is to speak with every trade up front and find out what they're willing to offer. It sounds good using their trade discount, but they might expect to mark up their purchases given they need to cover warranty issues. If you're buying, you also need to be on top of the trades at every turn, to find out what they need and when. You'll overpay every nearly time if you wait until they ask you for something.  

 

14 minutes ago, JohnMo said:

You can buy materials from anywhere, just get a VAT receipt, places like B&Q (can be way cheaper for some things that trade outlets), you have to ask for a VAT receipt.

 
I bought from all over the place and never asked for a VAT receipt. Receipts from places like B&Q generally show VAT, so nothing else is required. In fact, we had a few receipts that didn't show VAT and I just calculateed what we would have paid and noted it in the covering letter when reclaiming VAT. Everything was paid out without question. 

[SimonD]

44 minutes ago, jack said:

but they might expect to mark up their purchases given they need to cover warranty issues.

 

Yes, indeed, it's not uncommon for markups to be in the order of 20-40% sometimes, but as I've learned now being in the business, the whole transaction costs as a trade sourcing and buying in materials is significant - there's a lot of time involved. As a self-builder, I'd take my time doing materials lists to the nth degree, time I wouldn't have if I'm trying to earn money at the same time.

 

I think the reason for me asking is to primarily to keep control of costs and moreover to not be overcharged.

1 hour ago, IanB said:

I think the reason for me asking is to primarily to keep control of costs and moreover to not be overcharged

It's all swings and roundabouts, but having a comprehensive materials list to start is essential and a very important part of bargaining down prices. With my build I sent my spreadsheet to the various merchants and the one I chose, put the list on the account for the agreed discounts and each time I needed more materials, we just drew down on that list at the agreed prices as the project progressed.

With places like Midsummer, there are always the alternatives like Renewables Centre, City Plumbing etc. or even the other online suppliers - plenty of choice really.

[saveasteading]

1 hour ago, JohnMo said:

trade account doesn't mean best prices, you can be royally ripped off.

Indeed. Often the advantage of the account is simply the credit, which a small business may rely on between clients paying.

But prices are variable.

Eg blackjack recently. 10 litres varied from £18 to £35.

The best prices were wickes and our local BM even at shelf prices.

Trade discount at TP is 10% off, but still probably high. Online wasn't cheap.

SF and TS also seem to be ever dearer.. they depend on necessity and convenience, and selling lots of small amounts.

Nothing wrong with using B&Q or Wickes if they are near. 

I once got a whole lorry of blocks from TP then was surprised when B &Q lorry turned up.

 

For larger purchases you should try to get your address or the project reference on your receipt...it will make thd claim easier.

Also I suggest you staple any till receipts to an A4 along with a note of what it is for. I know if I was the vat assessor I'd welcome that.

[jack]

10 minutes ago, SimonD said:

Yes, indeed, it's not uncommon for markups to be in the order of 20-40% sometimes, but as I've learned now being in the business, the whole transaction costs as a trade sourcing and buying in materials is significant - there's a lot of time involved. As a self-builder, I'd take my time doing materials lists to the nth degree, time I wouldn't have if I'm trying to earn money at the same time.

 

I think the reason for me asking is to primarily to keep control of costs and moreover to not be overcharged.

To be clear, I don't begrudge anyone marking up a product up if they're sourcing, picking up, etc.

 

Whether something is overcharging is very much a matter of degree. I guess if you can see the price you can get something for (taking into account eventual VAT reclaim), you have a good basis for understanding whether what a tradesperson is proposing to charge seems reasonable in the circumstances.

[SimonD]

9 minutes ago, jack said:

To be clear, I don't begrudge anyone marking up a product up if they're sourcing, picking up, etc.

 

It's more of a reminder to myself of how I was once in a self-builder mentality doing the begrudging! Experience is a wonderful teacher! 😁

[IanB]

Thank you all - this is helpful. It's all new to me because I haven't embarked on build - still looking for suitable plot, but I have a very god builder/project manager who will use all his trusted people i.e. roofer, electrician, brickies, plumber so they are a known quantity

 

I'll use an example. Spirit Energy are a recommended renewables supplier. I want to purchase Sigenergy Battery and Viridian in roof panels. Last YouTube video I saw they had their warehouse stocked with Sigenergy as they recommend it and probably Viridian panels too. I can obviously look to but the components myself and get best discount but truth be told they probably got a much better deal buying in bulk. Would they divulge those material costs to me on a final invoice or would they just roll ito all up into the final supply and fit invoice, which as discussed for a new build wouldn't have VAT on top?

 

I guess my thoughts are if the project manager wants to use his tradesman - let's say brickies as an example, I say to them ok - purchase the materials you need for this job using your best trade outlet and discount but ask them to put the invoice in my name and address and I pay for it at that time so I can see exactly the units cost - yes I appreciate there a wait to reclaim at vat at the end. Then their second invoice if so the supply/labour bill so I can see the cost for each tradesman

 

Perhaps I'm overthinking it - as Jack rightly says you'll have an idea of the costs and of course I don't want to upset the tradesmen - important to keep them sweet

[jack]

38 minutes ago, IanB said:

Would they divulge those material costs to me on a final invoice or would they just roll ito all up into the final supply and fit invoice, which as discussed for a new build wouldn't have VAT on top?

 

I meant to mention this. A lot of suppliers won't separate out their costs in an estimate. I think a lot of people would be very upset to see how much of their money goes on materials in something like a heat pump installation by a typical heat pump installer. Also, for a lot of trades, this would be an onerous proposition. Imagine the effort that would be required for an electrician or plumber to provide an accurate estimate or invoice including exactly how many metres of cable/pipe, switches, valves, backboxes, couplings, etc., etc., etc. It just isn't feasible to quote or invoice at that level.

 

39 minutes ago, IanB said:

... I say to them ok - purchase the materials you need for this job using your best trade outlet and discount but ask them to put the invoice in my name and address and I pay for it at that time so I can see exactly the units cost - yes I appreciate there a wait to reclaim at vat at the end. Then their second invoice if so the supply/labour bill so I can see the cost for each tradesman

 

We tried this a couple of times. Some suppliers would only give trade discounts to tradespeople. From their perspective, if they put the invoice in the name of the self-builder, it becomes a consumer transaction with all the force of consumer law behind it. Many suppliers don't want that risk and would rather keep it business-to-business.

[saveasteading]

1 hour ago, IanB said:

so I can see exactly the units cost

I agree totally with @jack.

For some things that will work, eg we are buying all the materials for our timber construction. 

But we have an established relationship with the chippies. So we are on the same wavelength re waste and progress.

It can get very messy if the workers are prioritising speed over efficient material use. You get annoyed about buying more timber and fixings and the amount in the skip.

They get annoyed that they are short of something you haven't supplied.

What if the BCO says they need something more? You buying?

 

Groundworks.. you think they have dug too deep. Who pays for the extra concrete?

That would be much worse for plumbing/electrics.

 

Where you might do it is for a very small trader with cash issues. 

You buy the big ticket stuff on demand and leave him the hassles.

Remember that you will be responsible for it turning up on time and being suitable and for dealing with faults, or have to pay their downtime.

 

Don't dabble.

[jack]

1 hour ago, saveasteading said:

Where you might do it is for a very small trader with cash issues. 

 

Also, some want to stay under the VAT threshold and so will ask their customers to buy materials.