Builder VAT fraud

ranjitnarula

I appointed a builder for an extension. In the contract he mentioned VAT @10% on the full value. When asked why it was 10% he said labour and material cost was 50-50 and since there is no VAT on labour it works out to 10% of total contract value. I now understand this is incorrect since VAT is payable on labour and material

Each payment request of his showed VAT as a separate line item at 10% and I have his various emails confirming this

After I had paid him most of the money, I realised he was not VAT registered and hence was pocketing the VAT amount.

Now that I have paid him is there a way I can recover the VAT amount? If yes would it be through the small claims court or through HMRC?

Another issue is I have his email id and phone number. He has moved from his earlier address and not left a forwarding address. If I have to claim the VAT amount can I do so on the basis of his email id and phone number? He has obviously refused to give me his address

The VAT amount is quote sizeable and is approx £6500

Any help would be most welcome

Doozergirl

I think he's gotten the wrong end of the VAT stick.

He pays VAT on materials, of course. If he thinks his costs are 50/50 labour/materials then presumably he thinks that 10% of what he spends is VAT and is charging it on to you in the same way. He can calculate things that way, and include the cost of VAT on his materials on your invoice, but he shouldn't charge it out separately on that invoice as he was the 'end user' as far as HMRC are concerned. He won't be paying any additional VAT forward, so to speak.

I don't actually think he's deliberately defrauding you and pocketing VAT money due to HMRC because what he's done is so apparently odd. Anyone deliberately defrauding would just charge 20% as it would raise far less questions.

I do cash accounting and pay HMRC exactly what I take in VAT, minus what I spend in VAT each quarter, but there is also such a thing as a flat rate where certain trades pay on a % of their monies received to HMRC. For a builder it is actually 9.5% but they still have to charge VAT at 20%. There could be some confusion with that but I think it is just a case of his not understanding how VAT is passed on by someone who isn't registered.

You can report him to HMRC. I don't think you can reclaim anything, it would be HMRC reclaiming it, but they may also start looking for the VAT on the labour - that you haven't been been charged for yet or paid.

The guy needs some serious training. Being able to co-ordinate a building project is one thing. Running an actual business is another.

Aylesbury_Duck

You had a contract with this person for c.£70,000 and all you have is an email address and phone number? Where and how did you come to appoint him to do the work?

shaun_from_Africa

Aylesbury_Duck wrote: »

You had a contract with this person for c.£70,000 and all you have is an email address and phone number? Where and how did you come to appoint him to do the work?

It sounds as if the OP had a physical address for the builder when the work was carried out but he has now moved and they don't have his new address..

EachPenny

ranjitnarula wrote: »

I appointed a builder for an extension. In the contract he mentioned VAT @10% on the full value. When asked why it was 10% he said labour and material cost was 50-50 and since there is no VAT on labour it works out to 10% of total contract value. I now understand this is incorrect since VAT is payable on labour and material

Each payment request of his showed VAT as a separate line item at 10% and I have his various emails confirming this

After I had paid him most of the money, I realised he was not VAT registered and hence was pocketing the VAT amount.

Now that I have paid him is there a way I can recover the VAT amount? If yes would it be through the small claims court or through HMRC?

Another issue is I have his email id and phone number. He has moved from his earlier address and not left a forwarding address. If I have to claim the VAT amount can I do so on the basis of his email id and phone number? He has obviously refused to give me his address

The VAT amount is quote sizeable and is approx £6500

Any help would be most welcome

How much were the materials and how much was the labour?

He was entitled to pass on the VAT cost of the materials he purchased and paid VAT on - so if the materials cost 50% or more of the job then you've got a good deal and might be best advised to move quietly on.

What he meant by "there is no VAT on labour" is that he is not VAT registered and therefore doesn't need to charge you VAT for his labour. This is perfectly valid, but he mustn't give you an invoice showing a VAT charge on this element of the works.

His invoicing methods are wrong, but you should be cautious about describing it as a 'fraud' unless you have evidence to prove that is the case.

By all means report him to HMRC if you feel strongly about it, but they won't make him repay you. Any action they do take might involve him having to pay fines (and potentially go bankrupt) which wouldn't leave him with anything to repay you even if you were owed anything.

You also won't be sucessful in a court claim if he can show the VAT he passed on to you was paid out on materials. If the costs really were 50/50 then he owes you nothing.

Aylesbury_Duck

shaun_from_Africa wrote: »

It sounds as if the OP had a physical address for the builder when the work was carried out but he has now moved and they don't have his new address..

That's what I inferred but I'm still surprised that there's no means to find the builder's new address. Presumably he's listed somewhere?

ranjitnarula

I had his address when the contract was signed but he then moved home. He left no forwarding address and refused to give his new address.

Aylesbury_Duck

Fair enough but how did you come to use his services? There may be a way of digging out his news address in some circumstances.

Have you got any documentation detailing orders of materials? If he has an account with a supplier you may be able to track him down that way.

AndyMc.....

ranjitnarula wrote: »

I appointed a builder for an extension. In the contract he mentioned VAT @10% on the full value. When asked why it was 10% he said labour and material cost was 50-50 and since there is no VAT on labour it works out to 10% of total contract value. I now understand this is incorrect since VAT is payable on labour and material

Each payment request of his showed VAT as a separate line item at 10% and I have his various emails confirming this

After I had paid him most of the money, I realised he was not VAT registered and hence was pocketing the VAT amount.

Now that I have paid him is there a way I can recover the VAT amount? If yes would it be through the small claims court or through HMRC?

Another issue is I have his email id and phone number. He has moved from his earlier address and not left a forwarding address. If I have to claim the VAT amount can I do so on the basis of his email id and phone number? He has obviously refused to give me his address

The VAT amount is quote sizeable and is approx £6500

Any help would be most welcome

If you paid the agreed price why do you think you're entitled to anything back?

tired_dad

you were quoted a price, agreed to it, works done, monies paid.

As long a the work was to standard and in budget then move on.

Pennywise

ranjitnarula wrote: »

I realised he was not VAT registered

I can't see how he can't be VAT registered if your job was worth £70k plus - the registration threshold is £85k, so unless it was his only job for the entire year, he'll have breached the threshold.

I'd just report him to HMRC and let them look into it.