Paying VAT for building work

onlyroz

I have a question about some strange arrangements that are in place for paying the labour costs of our loft conversion.

We have paid the parent company directlyabout 2/3 of the money for the conversion to cover plans, materials etc. However, the labour costs are being paid directly to the individual labourers on a weekly basis. This means that I have had to add about 10 new payees to my online banking set-up, and then each week I have to make a number of separate payments for the work that each individual labourer has done.

This set-up seems extremely strange to me - whenever I have undertaken a large home-improvement project in the past all the money has been paid directly to the parent company and the company has then paid the workers. When I queried the payment process I was told that this set up meant that I wouldn't have to pay VAT on the labour costs. Apparently the labourers are all self-employed and so while they are working on my house I am their employer - and as none of them are VAT registered it means they don't have to charge me VAT for their work. However, if they were to be employed directly by the parent company they would have to add VAT to the labour costs.

Does the above sound correct? And is it legal? Obviously it is nice to receive a price reduction by paying a bit less tax, but this arrangement doesn't seem right to me.

dacouch

If they have an accident at work you could potentially be liable, if they damage your property or someone else or their property you could also potentially be liable.

Prothet_of_Doom

I would have walked away from that 'contract' before paying a penny.

You are vicariously liable for all the mistakes that YOUR employees make, need to have employers liability insurance, etc etc.

But in this case, the main contractor is acting as an agency for the sub contractors, who need to all have their own liability insurance, and you need a contract that makes it clear that they and/or the main contractor is liable for them.

What to do now ? Get the job finished and hope they do it right.

antrobus

onlyroz wrote: »

.... Apparently the labourers are all self-employed and so while they are working on my house I am their employer....

Either the labourers self-employed or they're employed by someone. They can't be both at the same time.

onlyroz wrote: »

.... Does the above sound correct? And is it legal? Obviously it is nice to receive a price reduction by paying a bit less tax, but this arrangement doesn't seem right to me.

It's fradulent evasion of VAT. And likely income tax as well, given the requirements of the CIS. By the 'parent company', not you. You can shop 'em if you like. After all, you've got a record of the payments to these labourers.:)

onlyroz

Well the parent company have been around for a long time, and say that this is the way they have always operated. I guess that I am not actually "employing" them, just that the company is basically taking a fee for introducing me to a number of self-employed workers.

So what are the rules for whether an individual contractor has to charge VAT for their work? If it is true that each individual worker is effectively operating as a sole-trader, can they get away without charging VAT if their charges fall within the VAT threshold?

bargainbetty

If you are being issued invoices by each contractor for the work they are doing and paying them directly, you are doing nothing wrong. They will be charging you for work done and should have insurance as a contractor.

If you are not receiving invoices, please insist that they produce them from now on.

The contractor has subbed out work - common practice. If the workers are all under the VAT threshold then they is no reason why you should pay it if they are billing you directly. However, unless you can show a contractual arrangement (such as a paper trail of invoices) your insurance situation is a bit dodgy, and if the worker claims that you 'employed' them, you could end up liable for PAYE and NI as well.

Get invoices. Good luck!

spacey2012

You are mixed up in a tax scam.

onlyroz

I will check the contract to see what it says about liability insurance.

Regarding invoices, I have a "labour sheet" which is filled out when payments are made. A typical entry might show that I paid Bob Smith £500 on the 1st of September for the first-fix electrical work. This is then signed by both myself and Bob Smith. Does this sound sufficient?

comeandgo

If you are paying these guys direct then they are not sub contractors of the main contractor. To be sub contractors the main contractor gets all the money then pays the subs - I would be a bit worried as to the guarantee of the work done by these guys - as you did not pay the main contractor for the work, you have no comeback on the main contractor.

googler

dacouch wrote: »

If they have an accident at work you could potentially be liable, if they damage your property or someone else or their property you could also potentially be liable.

Under what legislation or statue?

Similar thread;

https://forums.moneysavingexpert.com/discussion/4773908

chrismac1

Some of the posts on here are a joke. Without seeing the contracts, there is in no way enough information to form a judgement on whether any sort of "tax scam" or even avoidance is taking place here.

Firstly, it is the rule and not the exception in this sector that labourers are self-employed and filling in self-assessment tax returns. Providing they are issuing you with separate invoices and it has been set up correctly, so far so good. Is this any different from a situation where you'd engaged a project manager to do the procurement and design, and then separately got some labourers do do the heavy lifting?

Not in my view. Providing the main contract has been set up correctly all is well in my view.

Note the background to all of this is that HMRC have chosen the middle of the most savage construction recession in 50 years to become very aggressive with the sector - heavy fines for late submissions, ridiculous slow pay for legitimate refunds, and so forth.

Dealing with these HMRC prats adds significantly to the cost base of many construction companies, especially smaller ones. So being creative like your guy is, for many of them, a matter of survival not making monopolist margins.