Even the First Tier Tribunal suggested a common ruse which allows building contractors to avoid having to register for VAT.
In the decision of Peter Hartigan T/A Striking Iron, the Judge commented, as she concluded:
It is unfortunate that Mr Hartigan has not considered, or been advised, to make labour-only supplies, and to arrange for his customers to be invoiced directly by the suppliers for the materials, especially for the high-value items from catalogues. If he had been so advised, then his invoiced totals would not have pushed him over the VAT registration threshold in force for the relevant periods. (para 91)
The arithmetic is obvious. The value of his supplies is his labour only, not labour and materials. He may even be able to use a small number of sub-contractors and still remain below the threshold.
Personally, I have reservations over such arrangements:
- A private customer will engage with the builder to carry out certain works, not to fit specific materials purchased for him to fit.
- If the contractor uses a trade account to purchase the goods, thus obtaining a trade discount, then he must be presumed to supplying and fitting those goods.
- In the event of a complaint, the customer will revert to the contractor not the supplier of the goods.
- Will a contractor make the contractual position clear?
What do other AWebbers think?
About Les Howard
Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire
I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.