OT(ish) - VAT registration - one for the builders

[Bill Wright]

Ask about VAT schemes other than the basic one.

Bill

[Man at B&Q]

His calculation would still be wrong.

MBQ

[David WE Roberts]

** Top post warning ** I know I am arguing with myself and losing but after a long walk and much chuntering I think I may have finally grasped it. Comments in text.

Not quite. £500 material + 20% VAT accrues a VAT credit of £100 to the builder owed by HMRC. £500 labour + 20% VAT accriues a VAT debt of £100 to the builder owed to HMRC. So the builder owes no VAT and accrues no VAT. As long as the builder reflects this in the bill - i.e. £100 paid for VAT on labour but this cancels out the £100 VAT paid on materials - then the real costs for VAT registered and non-VAT registered are the same as A.Lee pointed out. Cost to punter should be £1100 because the VAT on the materials is effectively not paid by the builder.

• Labour cost and profit £500 (VAT collecteed)

So the way I think it works (before I change my mind again). If the split is 50/50 labour and materials then it should be a level playing field between VAT and non-VAT builders. If the labour is more than the materials then the non-VAT builder should be cheaper. If materials are more than labour then the VAT registered builder should be cheaper, but the saving varies with the amount of labour.

Cheers

Dave R