A contractor who does pay tax

Will26

We are extending our home and have found a contractor who is available to short this summer. He is not VAT registered and so we will pay him his labour costs without tax and paying him the building materials with VAT added. Does this seem legit? and is there any additional risks in undertaking the work in this way? 

thanks,
Will 

FaceHead

It's not legit if he turns over more than £85,000 in a year, or has been operating more than 6 months. If so he needs to be VAT registered. If he turns over less than £85k, or hasn't been in the job more than 6 months, then I would query his competence. 

Edit: I wouldn't take massive issue with this, however. If they are competent in every way, come well recommended, will do a good job, provide written quotes etc. but maybe their tax arrangements are a bit dodge, I would simply not look too hard at that. Others might take a different view. The main issue is what does dodgy tax arrangements imply about their work, if you don't have other good information about the standard of their work. 

Risteard

There is no requirement to be VAT registered after six months. Where did you hear this misinformation from?

Sandtree

Will26 said:

We are extending our home and have found a contractor who is available to short this summer. He is not VAT registered and so we will pay him his labour costs without tax and paying him the building materials with VAT added. Does this seem legit? and is there any additional risks in undertaking the work in this way? 

thanks,
Will 

Are you paying him for the materials or paying the supplier directly? An obvious way to keep your revenue down is getting your customers to buy the materials.

If you are paying him for them then you will be buying them without paying him VAT however he will have paid VAT to his supplier and so the total cost you'll pay will be what he was invoiced for inc VAT even though technically speak you aren't paying VAT.

TELLIT01

The guy who did our kitchen got us to pay suppliers direct for materials in order to keep his turnover below £85k.  One of the suppliers told me this is common practice amongst sole traders/one-man-bands to avoid all the paperwork which goes with VAT registration.

comeandgo

It is better to pay him for materials as if any problems with the job you contact him and him only.  If you pay for materials directly to supplier/ shop then your tradesman can argue that the problem is caused by faulty materials and you have to take it up with the supplier/shop who would likely say nothing wrong with our products, it’s the way your tradesman used them.

Doozergirl

TELLIT01 said:

The guy who did our kitchen got us to pay suppliers direct for materials in order to keep his turnover below £85k.  One of the suppliers told me this is common practice amongst sole traders/one-man-bands to avoid all the paperwork which goes with VAT registration.

It also does him the favour of making you responsible for the problems with any materials, not him! 

Handy, huh? 

Mistral001

He probably is totally legit if he is a one or two man business as the labour turnover will probably be well below the VAT threshold.  A VAT registered contractor will have to charge you VAT for both labour and materials.  The guy who does not have to register for VAT will be able to not charge any VAT on his labour. 

So if the labour was say £1000 and the materials were £1000 excluding VAT.,  you would pay the VAT registered business £2000 plus £400 VAT = £2400.  and you would pay the business not registered for VAT £1000 for labour and pay the builders merchant £1000 plus £200 VAT for the materials = £2200.