VAT on builders materials

VAT on builders materials

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Builder gave me a quote for work on the house. He says he invoices for labour but asks for cash for materials to keep his turnover down so that he doesn't have to register for VAT.

My first thought was that this was tax evasion. But on second thoughts - if he's not making any profit on the sale of materials and is actually just picking them up on my behalf and I'm paying him in cash to do this perhaps it's ok - If I took the cash to the builders merchant myself and picked up the materials would this actually be any different?

What do you think? And if it does work why don't all builders do it? Presumably it doesn't work and that's why they don't all do it! 

Thanks

Replies (5)

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By Steve Kesby
01st Aug 2013 23:21

It's not completely unusual

I know of a similar situation where a schools caterer, buys the (zero-rated) ingredients for a nursery (which makes exempt supplies) as the nursery's agent, delivers them and then provides a (standard-rated) meals catering service on the nursery premises. It saves the nursery VAT on the food element.

Garages that get your car through the MOT for you but don't actually do the MOT will often charge the MOT as a disbursement.

As you say, it only works if they only ask you to pay cost. As soon as they charge a profit, it is them receiving and making an onward supply (so gets included in the builder's/garage's turnover or takes on the liability of the main supply in the case of the nursery).

I can't see why it shouldn't work for a builder if they go to the builder's merchant and get them to make the bill out to the end customer.

It's a bit more sophisticated than you're average "I can knock off the VAT for cash" trader. Many of them might still be over the threshold without the materials, others may not know that it's possible.

Or one of the real VAT experts is going to show up and point out some glaring issue that I've missed.

EDIT: I see I crossed with Basil!

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By Mrtaxation
02nd Aug 2013 01:39

Common

It is common. Is it correct? arguable. Note I didn't say is it right as in moral..because VAT has been charged on materials anyway. The question is if the structuring achieves the desired result.

Strictly, from a contractual basis you have asked him to do this work and so it falls as to whether it is all one supply or not. As a complete supply HMRC could argue that he has supplied a full construction service. Think CPP and Levob. HMRC could also argue that the disbursement rules are not applicable.

On the other hand, it might be argued that he is providing a service of design, procurement and building. In that event you own all of the material whether he does the work or not. He has sourced them, paid for them and he should be doing so in your name. He could charge a procurement fee on top if separately stated. But you will be there as proud owner of a whole load of building material. Perhaps any excess you could sell to him for £1 to really demonstrate you bought it directly but he simply sourced and arranged delivery.

I don't think it is clear cut but it is defendable if the facts fit so if he is taking the VAT risk on then so be it.

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chips_at_mattersey
By Les Howard
02nd Aug 2013 09:14

Separate supply?

The contractual position is a significant factor. Of course, the builder is not likely to provide a detailed written contract which highlights that the goods are being provided separately. The reality, I suggest, is that the builder is making a supply of services including the installation of those goods. But, HMRC probably have higher priorities rather than chasing such businesses.

The same process is common amongst carpet fitters, where the customer buys the carpet from the retailer, but pays the fitter direct for his service.

You might also ask - what is the situation if some of the goods prove to be faulty? Who would the customer resort to?

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By shaun king
02nd Aug 2013 13:06

It is not unusual

I have a builder that I use and I always supply the materials and he supplies the labour. The only difference with the OP is that the builder tells me what he needs and where to source it from and I just ring and make the order and benefit from trade terms as well. It is just astute planning by the builder. My only concern is paying him cash to do it. Tell him to advise you what he needs and where to get it from and just order it for him. 

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By Briar
02nd Aug 2013 13:20

Done it for years!

I set up an account in my name with a local builders merchant many years ago. When I have had tradesmen in (many times over the years for different projects), I instruct the merchants to allow them to order goods on my behalf (I get the bills so would know if they misused the system). Thus, I pay the builders for the labour and know-how and, if they are not registered for VAT, I save the VAT. To be fair to them, I also offer to pay the tradesmen extra for the profit they have missed out on by not being able to buy the materials after trade discounts.

 

Most of the tradesmen I use are clients of mine (or become so when they realise that their current accountant does not advise them of planning opportunities!). They daren't rip me off because they know I might not do my best for them if they tried.

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