House Extension - Builder Questions...

[Murdochcat]

He needs to turn over less than £90k in a 12 month period to stay under the vat threshold.

That’s strictly not true.

HMRC decide the period and it can straddle 2 financial years

 

[nickjb]

That’s strictly not true.

HMRC decide the period and it can straddle 2 financial years

Yes it can straddle two financial years but it is a 12 month period. It's tax so I suspect it's more complicated and there will be loopholes but that is how it generally works.

"You must register if either:

your total taxable turnover for the last 12 months goes over £90,000 (the  VAT  threshold)
..."
From:

Register for VAT

How to register for VAT, change your details, cancel your registration, register for VAT in EU countries.

www.gov.uk

 

[noseall]

it can straddle 2 financial years

It is still calculated over 12 months regardless.

 

[Murdochcat]

It is still calculated over 12 months regardless.

I didn’t say it didn’t

A lot of people think it’s strictly done on the financial year, which it’s not

 

[noseall]

I didn’t say it didn’t

Then what bit of Nickjb's post is not true?

 

[mrrusty]

Regardless, before you hand over any money, you should have value

This is the key as @noseall says. It doesn't matter too much about the credentials of the builder provides that 1) you have confidence in him 2) he has a good relationship with building control (and you have faith in a private BC if it's not LA) 3) you pay progress payments for work done and/or goods on site (not advance payments) 4) final payments are dependant on satisfactory completion certificate.

IMHO the key is not to get too pedantic in enquiries of how the builder runs his business as it scares people away. It's not your problem how the builder is or is not VAT registered; if he says he isn't that's fine. However, I've paid for the materials directly before now to help a non VAT builder stay under the threshold.

 

[Ivor Windybottom]

If he's taking £50k off you then this is his turnover from this job. Whether he's paying whatever amount to his subcontractors doesn't matter, it's all still his turnover.

If you're buying the materials directly and/or paying the other workers directly then that's fine. If he's taking the money from you then probably not.

He's probably dodging VAT. It's unlikely that his turnover is actually below the threshold, if he does more than one other similar job per year. If he's asking for payment in actual cash then he's probably also dodging income tax, national insurance and the rest. It's your call whether this is an issue - I'm assuming you're paying less than you would to a bigger company. You may get questioned by your bank when you withdraw your £10,000s at a time in cash. If you tell lies, e.g. tell them you're buying a car, then if he gets prosecuted in future then you may be implicated.

But there's nothing wrong with being a Sole Trader, in fact it's preferable to employing a Ltd company as he is personally responsible for the job and can't fold the company and run away.

It sounds like he should really be a VAT-registered Sole Trader. You have to hope that he's dishonest with the government but totally honest with his customers.

Check you have his address, and also get references. If you don't care about the tax side of things.

 

[noseall]

If he's taking £50k off you then this is his turnover from this job. Whether he's paying whatever amount to his subcontractors doesn't matter, it's all still his turnover.

If you're buying the materials directly and/or paying the other workers directly then that's fine. If he's taking the money from you then probably not.

He's probably dodging VAT. It's unlikely that his turnover is actually below the threshold, if he does more than one other similar job per year. If he's asking for payment in actual cash then he's probably also dodging income tax, national insurance and the rest. It's your call whether this is an issue - I'm assuming you're paying less than you would to a bigger company. You may get questioned by your bank when you withdraw your £10,000s at a time in cash. If you tell lies, e.g. tell them you're buying a car, then if he gets prosecuted in future then you may be implicated.

But there's nothing wrong with being a Sole Trader, in fact it's preferable to employing a Ltd company as he is personally responsible for the job and can't fold the company and run away.

It sounds like he should really be a VAT-registered Sole Trader. You have to hope that he's dishonest with the government but totally honest with his customers.

Check you have his address, and also get references. If you don't care about the tax side of things.

^^^^^^^^^^
UTTER BOLLAX.

Avoiding hitting the VAT threshold is not only sensible for those working for private individuals, not in the VAT loop, it's actively encouraged by accountants.

Where has the OP mentioned cash?

 

[Ivor Windybottom]

I'll avoid your idiot-level of debate and stick to facts. Private or Ltd makes absolutely zero difference to the VAT situation. I run a small one-man Ltd company that's not VAT registered, lots of others are VAT registered Sole Traders, and every other combination also exists.

Whether your customer is an individual or business makes no difference. Obviously individual customers prefer not to pay it, VAT registered businesses don't care as they'll reclaim it.

If you turnover more than £90,000 you have to register and charge it to your customers. If your customer is happy to pay your suppliers directly then this money is not your turnover. If you take this money from your customer and hand it to your subcontractor or supplier then it absolutely is part of your turnover so counts towards this total.

It's a rolling year. If you have a busy end half of one year but the whole year is below £90k AND you then have a busy first half of the next year but that year is still below £90k then you may still need to register for VAT if any rolling 12-month period goes above it. Whether anyone would actually detect this happening is unlikely, but it's at least a theoretical risk.

If you take £50k off one customer now then, if you take more than £40k from all other customers within the next 12 months, you are required to register for VAT.

There's a very good reason for mentioning cash, it's how most work who want to avoid tax.

I have no opinion on the morals and ethics, you make your own mind up. I tend towards not caring, but ensure I don't do anything that makes me a knowing collaborator. I also tend to think that those who cook their books might also rob their customers, so if they're flying a bit close to the sun then I'd do more homework on them.

 

[aveatry]

If you take £50k off one customer now then, if you take more than £40k from all other customers within the next 12 months, you are required to register for VAT.

Not arguing with your knowledge here but how can that work, does the builder then have to pay the tax man the VAT value on the jobs already done. As I understood it you have to register for VAT if you "expect" your turnover to be over £90k. The builder didn't expect to get another £40k job within 12 months and doesn't expect to go over 90k anytime in the future, then what ?.

 

[robinbanks]

guy who is a builder but not registered as such

I don't think it's actually possible to "register as a builder"; there isn't an overarching professional governing body they're required to become a member of, in the same way that one e.g. "registers" as a doctor, architect, solicitor etc..

 

[Ivor Windybottom]

Not arguing with your knowledge here but how can that work, does the builder then have to pay the tax man the VAT value on the jobs already done. As I understood it you have to register for VAT if you "expect" your turnover to be over £90k. The builder didn't expect to get another £40k job within 12 months and doesn't expect to go over 90k anytime in the future, then what ?.

A firm "don't know" from me. I just treat £90k as a limit, and keep profits as high as possible within this turnover limit.

The system really needs reform, it's mad that the government gives such a huge punishment to businesses that grow. But I suspect that any change by this current lot would involve everyone paying more, not less. So best to be grateful for this little advantage we small businesses do get, if you're prepared to stay small.

 

[stuart45]

I don't think it's actually possible to "register as a builder"; there isn't an overarching professional governing body they're required to become a member of, in the same way that one e.g. "registers" as a doctor, architect, solicitor etc..

There isn't a legal requirement as there is in the USA to be a licenced contractor, just voluntary trade associations.

 

[Ivor Windybottom]

The Reform Party was/is promising to raise the threshold to £150k. Don't think any other party had anything to say about it.

 

[stuart45]

Not arguing with your knowledge here but how can that work, does the builder then have to pay the tax man the VAT value on the jobs already done. As I understood it you have to register for VAT if you "expect" your turnover to be over £90k. The builder didn't expect to get another £40k job within 12 months and doesn't expect to go over 90k anytime in the future, then what ?.

You can't go back to previous customers and get the vat back off them. They advise people to get vat registered when starting the business, but it's a requirement if you expect to go over the limit within 30 days.