Choosing a builder - Not VAT registered

[Mike1983]

Hi all

I'm currently getting quotes for an extension for my house. One of the quotes looks favourable from both a price point of view but also the detail in the quote and confidence obtained on the day they came round to survey. Additionally this company has lots of good reviews on CheckaTrade / elsewhere plus has given me current recommendations who I can call as well as organise a look at previous work in person.

The snag....

The price on the quote doesn't say whether or not it includes VAT, nor are there VAT registration details on the quote. After doing a bit of digging around, it looks like they are not VAT registered.

Would this cause any alarm bells to any of you?

Doing a bit of research online, I note you only need to be VAT registered if turnover goes above a certain value and I know this business has 2 main partners so I'm guessing they're conducting matters that results in the threshold effectively being doubled.

As it stands at the moment, I'm swaying towards these builders simply just being efficient with how they conduct their business and is no sign of any dodgyness / risk of poor worksmanship. What's everyone elses opinion and is there any advice on being aware of any pitfalls?

I'll be raising this question directly with them once I've got my final quote through and comparing offers.

Thanks

 

[Skiddley]

It's quite common, where the builder is operating below the VAT threshold in terms of income. Quite often this is acheived as the main contact is acting as a PM, essentially employing a team of subbies to carry out the work.

We had some structual alterations made last year and it was the same deal.

 

[Maccapacca]

You may end up paying individual trades yourself even though they will be under guidance and control by the builder.

This way none of them exceed the vat threshold and it's all 20% cheaper.

 

[psd99]

does he want cash for the payments?

he might just not be declaring the income properly to hmrc, I doubt that this impacts his workmanship

 

[the_r_sole]

I'd ask exactly what their set up is, even a couple of small extensions these days would push you over the threshold so I'm always wary of people who are acting as main contractors and aren't vat registered.
If they suggest you buy materials, pay subcontractors directly etc make sure you stay on top of all the payments you make and report progress back to the contractor every couple it weeks, I've seen jobs like this run away with cash payments to individuals

 

[FTM]

when we had a small ground floor extension the builder we picked wasnt VAT registered
but he had been in business in the town for decades and had a good reputation and was always busy

he quoted and I paid in 3 parts (some up front, some after ok from building control and final after completion and sign off from the council) ...so not sure if thats how he got round it, or things like the materials were all delivered in my name to my address but I still paid him.

he was superb and didnt seem in any hurry to take the final payment..in the end I had to get him to come and take the money about 6 weeks after completion..so again it may have been down to how and when he submitted and banked things himself

he was obviously in good standing with local suppliers as I was never pressured for any payment at any time...and even when he required a heavier bit of plant when they started doing the foundations it was on site within a couple of hours with no question about additional money

2 years down the line now and there has been nothing wrong with it at all..the lads who built mine are busy a couple of streets away and still say hello...but then I did keep them in bacon sarnies and coffee!

 

[Mike1983]

Excellent. That's reinforced my thoughts. I'll no doubt be asking more questions / start a build log for this project.

Thank you all

 

[Psycho Sonny]

Hi all

I'm currently getting quotes for an extension for my house. One of the quotes looks favourable from both a price point of view but also the detail in the quote and confidence obtained on the day they came round to survey. Additionally this company has lots of good reviews on CheckaTrade / elsewhere plus has given me current recommendations who I can call as well as organise a look at previous work in person.

The snag....

The price on the quote doesn't say whether or not it includes VAT, nor are there VAT registration details on the quote. After doing a bit of digging around, it looks like they are not VAT registered.

Would this cause any alarm bells to any of you?

Doing a bit of research online, I note you only need to be VAT registered if turnover goes above a certain value and I know this business has 2 main partners so I'm guessing they're conducting matters that results in the threshold effectively being doubled.

As it stands at the moment, I'm swaying towards these builders simply just being efficient with how they conduct their business and is no sign of any dodgyness / risk of poor worksmanship. What's everyone elses opinion and is there any advice on being aware of any pitfalls?

I'll be raising this question directly with them once I've got my final quote through and comparing offers.

Thanks

you cannot double the threshold. what they are doing is against the legislation. "an artificial split". they could easily be taken to court and then ruined with huge fines, etc on top of the VAT owed.

it's obvious they are gaming the system. the VAT threshold is only £85K of turnover.

"The taxable turnover threshold which determines whether a person must be registered for VAT , will remain at £85,000."

your quote alone is probably a large chunk of £85K i would imagine for an extension.

 

[b0rn2sk8]

It's quite common, where the builder is operating below the VAT threshold in terms of income. Quite often this is acheived as the main contact is acting as a PM, essentially employing a team of subbies to carry out the work.

We had some structual alterations made last year and it was the same deal.

No that’s wrong, it’s irrelevant if it’s subcontracted. The main contractor is making the supply, if the total supplies are over the threshold then VAT is due.

You may end up paying individual trades yourself even though they will be under guidance and control by the builder.

This way none of them exceed the vat threshold and it's all 20% cheaper.

No that’s wrong.

If the main builder quotes the whole job but then tries to carve it up the VAT is still due, even if you pay the trades directly. Again assuming the supplies are over the threshold.

Its pretty naive to think anything arrangement like that is nothing other than a tax dodge. There are very specific rules within VAT to deal with it.

I find it incredibly difficult to believe that any builder doing this sort of work couldn’t be VAT registered. You only need to do 4 extensions a year and you are well above the threshold.

If they were just contracted labour then yes, but supplying any kind of full service, no chance.

 

[a1ex2001]

I would think twice about employing a builder who isn't VAT registered, I assume he is asking for all payments in cash etc?

I have no problem with people minimising their TAX burden but I don't like this level of avoidance!

 

[Psycho Sonny]

I would think twice about employing a builder who isn't VAT registered, I assume he is asking for all payments in cash etc?

I have no problem with people minimising their TAX burden but I don't like this level of avoidance!

it's not avoidance "the arrangement of one's financial affairs to minimize tax liability within the law".

you are making it sound like what he is doing is legal when it's not. tax avoidance is okay. he is evading paying tax which is illegal.

 

[Bugbait]

I agree with the recent posts, wouldn't touch a builder that wasn't VAT registered. A single extension can easily be half or all of the VAT turnover threshold of £85k. The only way it would be legal is if you are directly contracting each part, i.e. Architect, Project Manager (if needed), Joiner, Plumber, Electrician, etc. If all the work is being sub-contracted (the clue is in the term sub) then your contract is with the builder and thus it's all part of their turn over.

 

[Psycho Sonny]

the crazy thing is though. if they were VAT registered they can re-coup the costs of all their building materials. also VAT is added onto their quote so they wouldn't have any less money in their pocket. it's less money in your pocket.

i suppose that is why they are doing it. to get more business from people who don't care so long as it's cheaper.

which is why this country is so two faced. what amazon do is legal. what google do is legal. but they want them to pay. but what these guy doing is illegal but don't go after them. nobody going to grass them up either.

 

[Pudney]

you cannot double the threshold. what they are doing is against the legislation. "an artificial split". they could easily be taken to court and then ruined with huge fines, etc on top of the VAT owed.

it's obvious they are gaming the system. the VAT threshold is only £85K of turnover.

"The taxable turnover threshold which determines whether a person must be registered for VAT , will remain at £85,000."

your quote alone is probably a large chunk of £85K i would imagine for an extension.

No that’s wrong, it’s irrelevant if it’s subcontracted. The main contractor is making the supply, if the total supplies are over the threshold then VAT is due.



No that’s wrong.

If the main builder quotes the whole job but then tries to carve it up the VAT is still due, even if you pay the trades directly. Again assuming the supplies are over the threshold.

Its pretty naive to think anything arrangement like that is nothing other than a tax dodge. There are very specific rules within VAT to deal with it.

I find it incredibly difficult to believe that any builder doing this sort of work couldn’t be VAT registered. You only need to do 4 extensions a year and you are well above the threshold.

If they were just contracted labour then yes, but supplying any kind of full service, no chance.

Because of the exciting jet setting life I get to lead in my working day, this article is hugely relevant:

https://www.taxation.co.uk/Articles/2018/05/15/338004/not-vat-registered-high-turnover

I assume it's available for all to read (normally it's subscription sensitive). However, the gist is that circumstances are far more complex than you suggest Importantly, the VAT business splitting rules require 3 tests to be met regarding organisational, economical AND financial links.

 

[Psycho Sonny]

Because of the exciting jet setting life I get to lead in my working day, this article is hugely relevant:

https://www.taxation.co.uk/Articles/2018/05/15/338004/not-vat-registered-high-turnover

I assume it's available for all to read (normally it's subscription sensitive). However, the gist is that circumstances are far more complex than you suggest Importantly, the VAT business splitting rules require 3 tests to be met regarding organisational, economical AND financial links.

his wife would have to have zero relation to his business. as in do zero work for it. all bank accounts would have to be seperate. all supplies/tools stored in separate locations, etc, etc. as if they were strangers. if anything is shared at all then they are linked and therefore cheating the system. the same goes for his subcontractors. they would need to have their own van. own tools. own supplies. own workgear, etc. it's not as if they could all be wearing the same company clothing, same company van, etc. as if they were strangers. with no link between them.

my official title is VAT Tax Professional fyi. However I don't deal with anything below millions of turnover per month. So I don't specialise in these small business's and they are completely different from my customers who break the threshold within an hour.

 

[Bugbait]

Because of the exciting jet setting life I get to lead in my working day, this article is hugely relevant:

https://www.taxation.co.uk/Articles/2018/05/15/338004/not-vat-registered-high-turnover

I assume it's available for all to read (normally it's subscription sensitive). However, the gist is that circumstances are far more complex than you suggest Importantly, the VAT business splitting rules require 3 tests to be met regarding organisational, economical AND financial links.

There's nothing in that article that contradicts what we've covered. A builder can supply a quote on behalf of others but if they are doing so then it needs to be clear because then the contract is between the client and them (not the builder). The builder is acting as a full or part agent. Splitting material costs is nothing new and also covered above, i.e. Contract from client to material provider.

It's perfectly legal and sometimes a good way to go. However, when things go is where it can get time consuming. Instead of contacting a single person or company you may now have to coordinate with several.

Supplying a quote with split labour is legal but this it not sub-contracting as the article mentions. A client to provider relationship is a contract (single contract involved). Sub-contracting is client to provider to another provider (2 contracts involved).

 

[Pudney]

his wife would have to have zero relation to his business. as in do zero work for it. all bank accounts would have to be seperate. all supplies/tools stored in separate locations, etc, etc. as if they were strangers. if anything is shared at all then they are linked and therefore cheating the system. the same goes for his subcontractors. they would need to have their own van. own tools. own supplies. own workgear, etc. it's not as if they could all be wearing the same company clothing, same company van, etc. as if they were strangers. with no link between them.

my official title is VAT Tax Professional fyi. However I don't deal with anything below millions of turnover per month. So I don't specialise in these small business's and they are completely different from my customers who break the threshold within an hour.

My official title is Tax Partner. However, my specialism is Corporate Tax so completely different field

The point still stands though, it is possible to split the business. You just need to be properly advised to ensure you don't fall foul of the links. There are definitely tax cases where HMRC attempts to combine businesses have failed, including a vague memory of a husband and wife who ran a restaurant/cafe next door to each other. I think the wife did the books for both companies, but I can't be sure as it is a very vague memory.

 

[Pudney]

There's nothing in that article that contradicts what we've covered. A builder can supply a quote on behalf of others but if they are doing so then it needs to be clear because then the contract is between the client and them (not the builder). The builder is acting as a full or part agent. Splitting material costs is nothing new and also covered above, i.e. Contract from client to material provider.

It's perfectly legal and sometimes a good way to go. However, when things go is where it can get time consuming. Instead of contacting a single person or company you may now have to coordinate with several.

Supplying a quote with split labour is legal but this it not sub-contracting as the article mentions. A client to provider relationship is a contract (single contract involved). Sub-contracting is client to provider to another provider (2 contracts involved).

I didn't say it would contradict you. I said it was more complex than you suggested.

 

[Psycho Sonny]

My official title is Tax Partner. However, my specialism is Corporate Tax so completely different field

The point still stands though, it is possible to split the business. You just need to be properly advised to ensure you don't fall foul of the links. There are definitely tax cases where HMRC attempts to combine businesses have failed, including a vague memory of a husband and wife who ran a restaurant/cafe next door to each other. I think the wife did the books for both companies, but I can't be sure as it is a very vague memory.

doing the books is acceptable for partners etc.

had she been storing his stock or vice versa then there would have been a case. or had they used the same chefs for both places or same waiting staff, etc. even if they were paid separately from separate accounts. the fact they share staff or supplies or stock rooms wouldn't be normal for 2 separate companies.

 

[Pudney]

doing the books is acceptable for partners etc.

had she been storing his stock or vice versa then there would have been a case. or had they used the same chefs for both places or same waiting staff, etc. even if they were paid separately from separate accounts. the fact they share staff or supplies or stock rooms wouldn't be normal for 2 separate companies.

I think there was sharing of suppliers and some staff were cross-purposed. However, the partnership rules are an "and" test and there was at least one that wasn't met in the case I'm thinking of. Apologies I can't be more helpful with this one, it only lodged in my mind as an interesting decision, I didn't pay too much attention as it's VAT (no offence!).