Money Moral Dilemma: Should I pay a builder's VAT bill months after the work was done?

Teaandbiccies369

It is the responsibility of the business owner to keep a check on their turnover and know when they have breached the vat threshold and to register for vat within the period HMRC sets out. They cannot charge vat on an invoice until they have received a vat number, but they can increase their prices to cover the vat they will be liable to pay to HMRC.

This sounds like a very common case of just having had your accounts done up to Mar25 for your Jan26 tax return submission and being informed by your accountant that you've breached the vat threshold and need to register.

You can certainly approach previous customers about covering the VAT on their services that is now liable to be paid, but you are under absolutely no legal obligation to do so.

Other VAT registered businesses usually don't have too much issue with it as they can reclaim the VAT again, but as a consumer you are in a different position entirely.

Speaking as a bookkeeper 🙂

whitevanandy

https://forums.moneysavingexpert.com/discussion/comment/81935914#Comment_81935914

This is absolutely correct.

grumpy_codger

https://forums.moneysavingexpert.com/discussion/comment/81935918#Comment_81935918

Really?! Wasting money on a solicitor or time on HMRC?!

The LEGAL stance is absolutely clear (and obvious) - the customer doesn't owe the builder anything. Hence the word MORAL in the thread title.

One-Eye

Let's assume he charged you £7920 with no VAT and is now wanting to charge you an extra 20% of £1584.

What he should do is adjust the invoice in his accounts to £6600 + 20% VAT of £1320 = £7920 which is the correct way to satisfy HMRC. You should not have to pay anything. Incidentally, if you were also a VAT registered business then you should also demand a revised invoice and you could claim the £1320 as input tax.

Also, as someone earlier mentioned, if he supplied the materials then the materials portion of the £7920 almost certainly already included some VAT, as not being VAT registered at the time, he could not have claimed back any VAT he paid on the materials. For example if the original invoice was for £3000 materials (ie £2500 + £500 VAT that he paid his supplier) and £4920 labour, your invoice should actually have been £2500 + £4920 +20% VAT of £1484 = £8904. This means you are 8904-7920 = £984 "short", not £1584.

General advice for traders/businesses that might exceed the VAT threshold if they have a really good year is to charge more so that any future invoice adjustment does not cost them. For example, for a £100 job (no VAT), charge £120 (no VAT) which is easily changed to £100 + £20 VAT later.

PennysIntoPounds

Lol no either he's hugely misguided or he's massively trying it on. Tell him politely what people above me have said but not your circus, not your monkeys. If he gets argumentative get his accountants details (so you can fact check, against HMRC or .gov advice if you feel the need to) then block him, you are in no way liable for him later being VAT registered.

This only turns into a moral dilemma if you feel you should get in touch with any labourer who's ever done a job for you in your life to ask if they've since decided to be VAT registered and would they like some more of your money too

Short version: 'sorry I don't have that sort of money spare and we agreed the price at the time. Thanks for your work and I'll be sure to recommend you'

medievalbiker

The answer seems to be in the question, you say he has to register from 1 May, thus he is still not registered and is attempting fraud.

Woodstok2000

https://forums.moneysavingexpert.com/discussion/comment/81935977#Comment_81935977

ReRead the post. The builder was VAT registered from May, and the later work (which he's now trying to charge extra for) was done in August.

You're correct that OP owes him nothing, but not for the reason you gave.

Section62

https://forums.moneysavingexpert.com/discussion/comment/81936108#Comment_81936108

"had to register", not "has to register".

Jemma01

I'm reactivating my limited company, the first two bills to my clients have to be without VAT because HMRC will only let me register for VAT after showing activity on the account. But my clients know that the invoices are without VAT and that VAT invoice will follow for those two payments once I'm VAT registered.

It sounds like VAT should have been paid on the works he did for you, and now HMRC is demanding that. I feel bad for the person. HMRC can strike any minute with extortionate bills that could destroy the livelihood of the business.

If the invoice says exl VAT, then it is easier to claim it from you, if not, it's really on the company.

ripongrammargirl

If this builder had to register for VAT from 1st May (2025 presumably) and he did work in August the same year, why was he not aware of this fact within the 4 months he gave the quote, VAT free, and did the work? So I reiterate that the customer does not owe any money to this builder, who should also be putting some cash aside on every job just in case something happens, like having to pay VAT!