Builder changing quote

JCB223

Hi,
I'm having extention built and after the foundations were done the builder said to me he'd had an appointment with his accountant and he was going to have to become vat registered so he was going to have to add that onto my bill. That works out several thousand pounds, can he do that half way into a job? Just increase the price like that?
Thanks

Furts

This suggests that the builders accounting is not good. Assuming that he is honest, and not a cowboy trying to rip you off, then he can charge VAT. This is the law.

To an extent whether you pay this depends on the contract terms you agreed with the builder.

Materials prices will not change so you will be looking only at VAT on labour. A way round this would be to pay the sub contractors directly avoiding his mark up plus avoiding the VAT. This would be down to your negotiating skills.

But there will also be VAT on his profit - in reality it may be this that you are being asked to stump up. Several thousands suggests this profit is £10000+.

For your peace of mind you should be requesting a copy of his VAT Registration and regular VAT Invoices. Then you will know if the story about VAT Registration is true.

Hope this helps.

MisterBaxter

You haven't said how much the original quote was for but just make sure he isn't simply adding the VAT percentage to the whole quote, for that you would need a direct labour cost breakdown if you haven't already got it. (Wasn't clear if he has given you the new price or if you have just assumed a 20% increase to take account of the VAT).

As Furts said the materials and any sub-contract costs shouldn't change as a result of his VAT registration.

Unfortunately it's not uncommon for small builders accounting skills to be lacking; it doesn't necessarily reflect poorly on their ability to do the job but it isn't helpful when you get hit with a significant cost change such as this.

moneyistooshorttomention

Does his quote come as a "written quotation" or an "estimate".

If its an estimate - then he can change it.

If its a "written quotation" - then its my understanding that he cant. I don't believe the law would let him do so.

The very first job of all I had (many years back now) was on my starter house. I had already read that the law insists a "written quotation" cant be changed by the firm concerned - but an "estimate" can be. Hence I'd said it was a "written quotation" I required from him. My quote duly came in writing and headed "quote" or "quotation". He came back to me asking for more - and with a lie for an excuse as to why he wanted more - and I just pointed out that it was a "written quotation" and paid him exactly what that quotation had said and that was the end of that.

Try asking the Trading Standards Office if that law still applies - I cant see that it would have been changed in the meantime. I expect the law concerned doesn't allow any leeway for the builder adding anything extra (and that includes VAT).

Worst case analysis and the law is unclear on that - then pay the bill originally agreed and see if he tries taking you to the Small Claims Court for HIS mistake. I doubt he would. If he did, then the court would decide how that law should be interpreted and I would imagine it would be in your favour.

Doozergirl

We have to consider what is fair to everyone. It may be that the quote should be taken to include VAT if he were registered, but if we're talking a lot of money and this is a genuine mistake, then the impact is going to be strained relations and a potentially inferior product at the end if the OP insists on the initial price.

In fact, if the OP insists on only paying the original quote, then I suspect the builder will actually cut their losses and leave.

I have to say, I would never expect to employ someone for a job as large as an extension and not pay VAT. It doesn't make sense.

If the builder goes, I doubt the OP will find another builder without VAT so there is no net gain for them.

As for forming a new quote. OP, some of this has been run through by others; he shouldn't add VAT to the materials as we all have to pay that.

Subcontractors are all different; it will depend on each one and whether they are VAT registered themselves as to whether it is already included. Essentially, where your builder has already planned to pay VAT, it will be included already in your quote but it needs splitting out between what is net and what is VAT.

His own labour, employees, not-VAT subbies and profit all need VAT adding.

I have a feeling that his accountant would be best to help him split out your new invoice as if he's only just registering, he may find it confusing.

It's in his interests to make your quote as low as possible.

I wonder if he would be allowed to split your job into sections and quote you firstly for one phase without VAT until he gets just under the threshold. Then quote you for the second phase and remainder of works with VAT. It might make it cheaper.

If you start paying subbies separately, your contract changes and his liability is reduced - and with it your comeback.

I'd aim for a compromise. There would be a compromise somewhere if you just insist on paying what was written.

Furts

Sorry Money, I am siding with Doozergirl on this one. Nobody in business argues with the VAT folks, and this all powerful mechanism will over rule anything - unless you have Barristers and tax consultants working for you!

But I am also unconvinced by Doozergirl's suggestion. The builder is currently part way through their trading year. It is probable that the accountant has found that the threshold has been hit or exceeded. So VAT registration cannot be delayed. There would not be a mechanism to register and keep below the threshold.

Doozergirl

I've edited my post. I think that if the builder were already VAT registered, that the quote could be accepted as including it - if it hadn't been specifically excluded, iyswim. I am not convinced that if the builder is not registered but subsequently does so, that it would be clear that the quote should be upheld in the same manner. I don't think moneyistooshorttomention's suggestion is necessarily correct in that case.

I am only suggesting splitting the job into two if the threshold is hit by this job. Registration can be planned between the two. Clearly, if he's already over the threshold, there's nothing to be done. He whole thing needs to be dealt with in one.

I think the only only solution is compromise.

System

When I was self employed I always had a note on every quote/estimate stating that I wasn't currently vat registered but it may change during the course of the job.

I can understand that adding VAT on is going to add a significant cost but it can't really be avoided imo - it's unusual for a contractor that would be acting as a main contractor not to be VAT registered these days.
If you are unable to pay the extra or don't want to, you should have a conversation with the builder asap!

Stevie_Palimo

the_r_sole wrote: »

When I was self employed I always had a note on every quote/estimate stating that I wasn't currently vat registered but it may change during the course of the job.

I can understand that adding VAT on is going to add a significant cost but it can't really be avoided imo - it's unusual for a contractor that would be acting as a main contractor not to be VAT registered these days.
If you are unable to pay the extra or don't want to, you should have a conversation with the builder asap!

I would not have employed your services with this listed as it is either way being charged or not charged and stating that you may decide to charge is unfair after works have commenced.

MisterBaxter

I know it's a slightly different scenario but when the rate of VAT has changed any valuations invoiced and paid prior to the change are paid at the prevailing rate at that time; valuations paid after the rate changed are paid at the new rate. The rate payable is based on the date of the contractors VAT invoice as opposed to the date the works were valued (more relevant on long running contracts but it shows that there are mechanisms for dealing with such issues).

If the Contractor in this instance was forced to become VAT registered part way through the job because they had hit the VAT threshold I would have thought that it should be possible for an interim payment to be made up to the point of VAT registration and for this to be invoiced/paid without VAT; all works/invoices issued after VAT registration would then be subject to VAT. (I think this is what Doozergirl was suggesting).

If there is a formal written contract in place then a Solicitor who specialises in construction contracts may be able to unpick the legalities. If it is a contract through either verbal agreement or a simple exchange of letters the technicalities around VAT could be more difficult to unpick but would still need specialist advice.

The OP has two choices as I see it; agree or refuse to pay the VAT; if they choose to refuse then the Contractor may walk away and claim that they had no choice but to charge as VAT is a legal requirement now that he is registered. If a new builder comes on board they may also be VAT registered so there is no net benefit. The OP is still left with a potential legal wrangle.

System

Stevie_Palimo wrote: »

I would not have employed your services with this listed as it is either way being charged or not charged and stating that you may decide to charge is unfair after works have commenced.

when you are starting out it is impossible to know exactly when you will hit the VAT threshold so for a time it puts you in an advantage against your competitors, but if you hit the threshold you have to charge it - I never lost a job for being honest about my VAT situation!