How is this builder avoiding VAT registration?

teneighty

southcoastrgi wrote: »

& bare in mind that if they were your folks would have paid £60,000 more for their extension

No doubt the customer will send a cheque for £60,000 to HMRC as they are so concerned about the builder avoiding the VAT.

Furts

Paying the VAT is a red herring and if the customer was paying on a properly priced job they will already have paid some VAT. One can then argue the extra figure for VAT would not be £60000.

For example let us say the big extension has consumed three artic lorries of bricks. Say 30000 bricks at £500 per thousand. The builders will have paid this bill to the builders merchants and there will be £3000 VAT paid at the same time. This £3000 will be included in the quote given to the consumer.

One could say the consumer has evaded the VAT on the labour but the building industry is based on sub contracting. If the plumber, the electrician, the roofer, the scaffolder and so on all submitted quotes with VAT on them then this too may have ended up at the rightful VAT headquarters.

There are many consumers who bandy around wanting to pay cash to avoid VAT without understanding that matters are never this simple. Equally we have a system set up over years to get at least some of the VAT back to where it should end up.

Pushed to give a gut reaction to OP's post I would say this could be one of naivety, ignorance, or complicity in VAT avoidance. I do not know if these apply but consumers should not go down these routes and expect an easy outcome.

Doozergirl

Furts wrote: »

Paying the VAT is a red herring and if the customer was paying on a properly priced job they will already have paid some VAT. One can then argue the extra figure for VAT would not be £60000.

Extra VAT to pay over to HMRC is usually around 40-50% of VAT charged for my company, looking at a few returns.

I think flat rate VAT for builders is around 12.5%, so the OP's parents could offer HMRC a cheque for somewhere between £25,000 and £37,500.

jrck2

Thanks all for your replies. They confirmed what I thought. As TheCyclingProgrammer mentioned, it could be useful ammunition or leverage at a later date - this was my reason for asking.

teneighty: I don't think my parents-in-law will be offering HMRC a cheque, and as others have said, the builders' VAT arrangements shouldn't be our concern. It is their responsibility to charge us VAT as required, and not our responsibility to ensure they do so.
Annie1960: thanks for the link.
TrailingSpouse: I will investigate.
the_r_sole: yes, I suspect their quote was cheapest due to there being no VAT, although apparently the decision was made predominantly on the now-retracted recommendation.


Those of you who said we should have asked more questions/heard alarm bells - In future we will!

A twist in the story: Some Internet searching has revealed that they ARE VAT registered. For some reason they aren't charging VAT. I'm unable to find them on Companies House, which also seems odd - surely they should be registered?

Furts

jrck2 wrote: »

A twist in the story: Some Internet searching has revealed that they ARE VAT registered. For some reason they aren't charging VAT. I'm unable to find them on Companies House, which also seems odd - surely they should be registered?

Tax evasion comes to mind. The contractors are VAT registered and are reclaiming all the VAT they have paid on materials. They are being paid cash so are not declaring this as business income and are thus not paying tax on it. Win, win, for them.


A post perhaps two weeks ago made the same comment as a I always do. Never trust any recommendations. Always check out who and what the recommendation is. One contractor I am aware of was paying people cash to give false recommendations, and offering others additional works and upgrades. This continued for years until the law caught up with him and down he went. Sounds like OP's contractors could head the same way.

jrck2

Furts wrote:

They are being paid cash so are not declaring this as business income and are thus not paying tax on it.

They're not being paid cash. They're being paid by bank transfer. Anyway, I think you're right: it sounds like tax evasion.

macman

jrck2 wrote: »

Thanks all for your replies. They confirmed what I thought. As TheCyclingProgrammer mentioned, it could be useful ammunition or leverage at a later date - this was my reason for asking.

teneighty: I don't think my parents-in-law will be offering HMRC a cheque, and as others have said, the builders' VAT arrangements shouldn't be our concern. It is their responsibility to charge us VAT as required, and not our responsibility to ensure they do so.
Annie1960: thanks for the link.
TrailingSpouse: I will investigate.
the_r_sole: yes, I suspect their quote was cheapest due to there being no VAT, although apparently the decision was made predominantly on the now-retracted recommendation.


Those of you who said we should have asked more questions/heard alarm bells - In future we will!

A twist in the story: Some Internet searching has revealed that they ARE VAT registered. For some reason they aren't charging VAT. I'm unable to find them on Companies House, which also seems odd - surely they should be registered?

There's no requirement to be a limited company just because you are VAT registered. or vice versa. Or the trading name may be different to the registered one. What do the invoices say?

Marktheshark

Start saving the extra 20%, you will be paying it by the sounds.

patman99

It will down to the builders to pay the VAT rather than the customer. After all, the customer had no knowledge of the builders not being VAT registered.

Seriously though, in which country is the builders bank account in?.
It could be that they have an account in a tax haven such as the Channel Islands or the Caymen Islands. In which case they could be using a loophole to avoid tax.

trailingspouse

You misunderstood me - when I said the VAT was his business, I didn't mean we shouldn't care whether he's paying VAT or not. Yes, of course we should all pay what we owe (my own VAT bill was over £5k this last quarter). What I meant was that what he owes and what he pays is for him to sort out with HMRC - in the original post the OP had suspicions that he wasn't VAT registered, but no actual proof (and in fact it now turns out that he might be).

And my main point holds true - if there's a question mark over VAT, what else might be a bit iffy?