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

David WE Roberts · 2012-02-20T11:13:04+00:00

We are currently getting quotes from builders to do the major work on remodelling the back of our house.We plan for some DIY involvement but tearing the rear ground floor wall off the house and leaving the upstairs hanging on some variety of sky hook is not within our current ambitions.First one has come in, and was {cough} how much?The builder is VAT regitered and the VAT was {COUGH -HOW MUCH?}.We had another builder round to quote, who hasn't yet got back to us with a quote but he also passed the details onto a mate (checked with us) who came round to see us.This mate is not VAT registered.Now the difference in a price, if you assume 50% labour and 50% materials, should be about 10% of the total between non-VAT registered and VAT registered.This can be the difference between just affordable and not affordable.So is there a level of job which fits neatly with a non-VAT regitered builder, such that it gives a decent return but doesn't take them over the limit for VAT registration, and does the building community tend to steer the smaller non-VAT registered builders towards these jobs and keep the bigger jobs for the VAT registered crowd?It does seem to make sense, and our non-VAT builder did tell us that has turned down at least one job because it would take him over the VAT threshold.If this idea is valid (and it does seem to make some sense) then how does the small builder avoid VAT registration?As I see it there are a few main ways.(1) Take a large proportion of small jobs which keep you busy but don't break the budget.(2) Take larger jobs but space them out so you only work say 6-9 months of the year.(3) Take larger jobs but do them 'slow and steady' at a lower hourly rate for labour to keep occupied all year and keep a steady income without the temptation to spend the spare cash. This especially if you really enjoy the job so wouldn't know what to do with 3 months a year off.I am ignoring any "do a few large jobs for the accountant/tax man and boost your take...

B

Bill Wright 14 years ago

Ask about VAT schemes other than the basic one.

Bill

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M

Man at B&Q 14 years ago

His calculation would still be wrong.

MBQ

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D

David WE Roberts 14 years ago

** 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

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

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