VAT for Renovations on an empty property

[newhome]

On another group someone asked about the VAT regulations for a property that had been empty for more than 2 years (but less than 10). I was able to say that they could get eligible work done by a VAT registered builder on a supply and fit basis @ 5% VAT. They wanted to know about work they did themselves so I said that there is no concession for buying building materials themselves and doing DIY work so the supply would be standard rated in that scenario. They then asked it they could set themselves up as a VAT registered trader / sole trader and therefore benefit from getting supplies @ 5% VAT. I told them to seek professional advice as I thought there might be some gotchas within the tax system that they could inadvertently get caught up in but what is the answer here? Is that something people are able to do or are there some implications? 

[Temp]

Perhaps I'm wrong but...

 

Directors are normally considered employees of the company. If the company does work on the directors house I guess that would be a benefit in kind liable to tax (and NI?). So the director would need to pay the company for their services. Would getting the money back out of the company be difficult? Taxed? Dividend tax? Income tax?

[newhome]

Yes I mentioned such things that could be areas of concern for HMRC at which point he told me that I was accusing him of tax avoidance when at the very start I said that he needed to take professional advice so the conversation ended. In any event it was a hypothetical question as he hadn't even stated his renovation work so no one was avoiding anything at that point. It does seem to be an area where it isn't very clear cut, and surely you can't set up a company just to avoid paying VAT at standard rate and for the company to deliberately avoid making any profit? Or maybe you can? One for an experienced accountant to advise on I imagine. 

[Lesgrandepotato]

Interesting area, we benefited from this using a main contractor who billed for all other services on a T & M basis. Worked for us. Ymmv

[newhome]

This person wants to do much of the work himself but have a way of getting supplies on a 5% basis that he can't do via the DIY option. So use a VAT registered company / sole trader arrangement to front him doing the work (and buying supplies @ 5%). I think his thinking is that his services could be charged by the company at zero or next to nothing and the 'bill' to himself as house owner would mostly consist of the supply items but noted as a supply and fit arrangement and thus 5% VAT. 

 

 

[Lesgrandepotato]

So part of the challenge you’ll have there as well I suspect is a lack of trade accounts to buy through. 

We took the view if needed to be win win for us and a builder doing it so we made sure we bought enough services and they bought a lot of materials 

[Lesgrandepotato]

It’s also worth noting this scheme only works on bigger builders who are beyond the flat rate vat scheme in turnover. If not then the 5% vat just costs them 10% of the job. 

[newhome]

23 hours ago, Lesgrandepotato said:

So part of the challenge you’ll have there as well I suspect is a lack of trade accounts to buy through. 

We took the view if needed to be win win for us and a builder doing it so we made sure we bought enough services and they bought a lot of materials 

 

Self builders seem to be able to set up accounts easily enough, or are you saying that those in the trade will get much better deals using their accounts than a self builder?

 

23 hours ago, Lesgrandepotato said:

It’s also worth noting this scheme only works on bigger builders who are beyond the flat rate vat scheme in turnover. If not then the 5% vat just costs them 10% of the job. 

 

Isn’t the flat rate scheme mostly for trades that provide services though? I think I read when I glanced at the flat rate scheme before that buying materials needed to only account for circa 2% of turnover. And isn’t using the flat rate scheme a choice? Presumably not one you would make if your main reason for registering for VAT was to reduce the VAT paid on materials. 

[vivienz]

I set up a trade account at Howdens a couple of days ago to get my temporary staircase.  Took in some ID and my bank details, they did a credit search and it was up and running with a credit limit a couple of hours later.

[Oz07]

On 07/09/2018 at 21:59, Temp said:

Perhaps I'm wrong but...

 

Directors are normally considered employees of the company. If the company does work on the directors house I guess that would be a benefit in kind liable to tax (and NI?). So the director would need to pay the company for their services. Would getting the money back out of the company be difficult? Taxed? Dividend tax? Income tax?

Yeh building for yourself is BIK but I think mitigated by paying your company a profit margin. Say 10% then no BIK to my understanding. 

 someone have to do the figures to see if better off incorporating company. I suspect not but if you already have one then should be better off?

[newhome]

24 minutes ago, Oz07 said:

Say 10% then no BIK to my understanding. 

 

How would you value the work done? So take a simple example buying a shower. Shower is £100 excluding VAT and is purchased with 5% VAT £105. Labour is costed at an hour to fit so let’s say £10 (do you have to charge labour to yourself?). Invoice to ‘customer’ / self £115. Or are you saying that the invoice would need to be £115 + 10% to escape BIK so £126.50?

 

Shower bought with 20% VAT and DIY fit = £120 

 

 

[Lesgrandepotato]

3 hours ago, newhome said:

 

 

 

Isn’t the flat rate scheme mostly for trades that provide services though? I think I read when I glanced at the flat rate scheme before that buying materials needed to only account for circa 2% of turnover. And isn’t using the flat rate scheme a choice? Presumably not one you would make if your main reason for registering for VAT was to reduce the VAT paid on materials. 

 

The flat rate scheme is much easier to administer. Hence when we looked most small operations where on horizon. (As was I when I had my own services business) 

 

And as you mentioned. I reckon most of them are buying more volume and therefore getting a better deal. Not on all stuff but quite a bit. We only hunted out deals on major items. It’s a question of the saving if you are £20 an hour or £75 per hour as a professional how much are you saving spending 4hrs finding the best price? 

[newhome]

I think some people see setting up a company as the holy grail to avoid paying full VAT without necessarily seeing the full implications of doing so. It's certainly not something anyone should do without seeking professional advice (that will also come at a cost). Let’s face it, if it was so straightforward everyone would be doing it. 

[Oz07]

Say renovation cost of 50k inc all materials and labour but exc vat. Rather than personally you pay 60k  i.e. 50k + 20% vat. 

Take 50k, add 10% margin 55k then 5% vat 2750 £57750

 

saving of 2250 up front plus 5k in company which is now profit. Less corp tax of 20%. 

 

Just a quick back of fag packet calc. I've not done it personally but that's how I would want to structure something. As I say probably not worth incorporating over but if you are already a vat registered contractor or subbie

[recoveringbuilder]

@vivienzdon’t know if it was you or someone else that said you could get a cheap temporary staircase from howdens for £120?

[vivienz]

Abso-flippin-lutely! Mine is all in place now and doing a splendid job.

[recoveringbuilder]

@vivienzfantastic I have to get one tomorrow eventually persuaded hubby that I really need to get up there so hopefully my branch will have one