Building contractor's VAT

VAT on labour vs material

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I have confusion over a VAT issue with building contractors and would appreciate it if someone can help out. If a painter and decorator include in his/her invoice that they are billing for labour only and anything they are charging for the material is just a reimbursement of the expense they are incurring on behalf of their customer, does the material part still count as turnover for the purpose of VAT? Not counting the material charge as part of turnover can keep them below VAT registration threshold but is that going to clash with any HMRC guidance? In my view, the customer can provide them the material but the contractor is buying on their behalf and get reimbursed to keep the process simple. So, the material should not be part of the turnover. A few thoughts would be helpful.

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RLI
By lionofludesch
16th Jan 2021 13:46

In theory, yes.

In practice, it's not quite so straightforward. The decorator would need to have the bills addressed to the customer and, if there was any magnolia left over, he'd need to leave that with the customer, rather than take it away and use it on his next job.

It's possible - but fraught with difficulties and temptations. The danger is that he'll get it wrong, breach the limits and - hey presto - creates an unwanted VAT liability for himself.

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