Builder is going VAT registered + how to proceed:?

silvercar

.....yet the OP is essentially trying to knock the guy down on price in protest at the price increase.

But the price increase shouldn't be 20% as the price of materials has always attracted VAT one way or another.

Either the builder doesn't realise this or his accountant has just told him to add 20% to his prices without explaining what "his prices" means.

martinsurrey

Doozergirl wrote: »

Except no one has allowed for the mark up on materials, which is perfectly acceptable and expected. The “product” is the extension.

I'm sure you know what I'm about to spell out, but its good for people to see an example

Say you had a quote of £10k, broken down as £5k labour and £5k materials

The materials are already marked up by 20% which means he bought them for £4120 inc vat (£3,430 excl vat), his cash on the job is £5000 labour and £880 on the materials (£5,880).

Once hes vat registered the price of the work SHOULD go to £11,180 inc vat (£9,136 excl VAT) an 11.8% increase to the consumer. his take on the revised deal is £9,136-3,430= £5,886 the same as pre VAT registered.

the higher the materials component and the lower the price mark up the lower the change in price.

you can work out the expected price change as a percentage as follows

(labour fraction)*.2+(materials fraction)*(mark up %)*0.2

in my example (0.5)*.2+(0.5)*0.2*0.2=0.1 + 0.02 = 12%

silvercar

I always thought that tradesmen had trade accounts/ bulk buying discounts/ friends in the trade etc so obtained a discount on the retail price some of which is put against the mark up they charge on goods supplied.

martinsurrey

silvercar wrote: »

I always thought that tradesmen had trade accounts/ bulk buying discounts/ friends in the trade etc so obtained a discount on the retail price some of which is put against the mark up they charge on goods supplied.

Doesn't matter, what ever the difference between what he pays (less than retail) and what he charges will lead to a net VAT charge for the customer.

TheCyclingProgrammer

Maybe this talk of passing on the "VAT refund" really meant that the builder was planning to recharge all materials at the net cost price and not add a markup, which should make the transaction VAT neutral.

Doozergirl

The problem for this guy will be the maths. So it’s great posting up the formula but without wanting to generalise or be disrepectful in any way to skilled people, but a lot of jobbing builders don’t possess a GCSEs in maths or much else. It doesn’t matter what any of us who are already VAT registered and capable of doing our own book keeping say, many trades are absolutely terrified of VAT and don’t even begin to understand it. If you’re at the very beginning of that journey, it’s understandable when you don't know what to expect from the first VAT return.

My major concern is that this person’s new VAT registered status raises questions about their qualification to project manage and financially manage *as well as* build the extension for a paying customer. Why is he only just VAT registering?

Three modest single storey extensions will send a builder flying over the VAT threshold for yearly turnover but would not take a year to build.

I am also worried about the OPs lack of apparant funds, meaning that they seem to be picking their preferred builder by a matter of necessity, trying to batter him down. If the builder has underpriced the initial quote (which I am guessing he may well have done given that there was a considerable discrepancy between his quotes and others) then there is a massive chance that this job is going to end up on TVas a cowboy job, when in fact we’ve got a builder on a learning curve (we went through it ourselves when we started commercially) and a client who can’t actually afford what they want.

I have asked questions, but in the lack of posting from the OP can’t help much, but I am worried that the extension was underpriced before VAT was ever uttered. The OPs focus is *all* on price.