I have a client, a builder who is trying to stay below the VAT threshold.
I have advised him that it is perfectly legal for his customers to purchase materials from the builders merchants thereby keeping this out of his turnover
As long as the customer pays the merchant directly of course, (not by settling the builders account at the merchants).
I have told him that this is perfectly legal and there is no anti avoidance legislation to prevent this.
I would really like to settle my nerves that I am actually correct in this method, I can see no reason why it is not perfectly legal and free of nasty holes to fall into.
I know that there are plenty of tax wizards on the community and I would be very grateful for your feedback. It would completely extinguish any pangs of nerves I may get. The liability would be horrendous if I had got it wrong.
Replies (13)
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Yes - only time one of our client's got caught out was that he had an account at the store, which was in his name. He got the cusotmers to book all items to this account, and they then paid the store direct (which went to his account)
HMRC argued therefore that the supply was goods to him, then he supplied to customers. We tried arguing but in the end client told us to accept it.
So th emoral is make sure they are billed direct to customers.
Yes, but ...
The problem is that the client takes the advice and then believes that he will never have to register for VAT.
Somewhere down the line he will end up buying the materials himself for just the odd job or he will take on a mate and his turnover may well exceed the registration threshold. You will only find out about it too late when you prepare his accounts. He will say "but you told me that I didn't have to register for VAT".
Make sure you add caveats to your advice.
Budget savings
Settle for £89,999.990 and buy yourself three pints to help the thought process!
(I assume that you can get three pints for a tenner - I can!)
Trying to find £90m saving in our budget gets a thirst on you.
VAT avoidance - or evasion?
The basic, very simple, advice is OK - as is so often the case.
BUT it is fraught with problems in correct application. If the customer buys the goods at B & Q or similar and takes home or arranges delivery then that is probably all OK. But he will then find that the builder can get a better discount at B & Q or through a trade account so he orders them on the builder's account. etc, etc.
The builder may say that he will arrange ordering so he gets the correct materials.
If your client, the builder, has a legitimate turnover below £77,000 then he must be at the top of HMRC's local hitlist for investigation!
The VAT flat rate scheme is not very helpful to builders with a rate of 12%, less 1% discount for 1st year.
What about then paying his sub-contractors direct - in cash?
The problems are many and very real.
Perhaps you should be looking for clients with a turnover exceeding £77k!
Peter Lashmar
Lashmars Tax Accountants
Tel 01590-688838
e-mail [email protected]
Disbursements?
Is it possible for the builder to buy the materials and bill his client for the exact same amount, no VAT being involved? The bill for his time would be separate and liable for VAT.
Such procedures (known as disbursements) exist in other areas, such as solicitors.