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

Section62

https://forums.moneysavingexpert.com/discussion/comment/81936491#Comment_81936491

…then that figure ALREADY INCLUDES THE VAT and thus the customer has already paid the VAT.

You misunderstand the law.

It is illegal for a non-VAT registered business to charge VAT. The only VAT included in a quote/invoice issued by a non-registered business would be the VAT paid to suppliers for materials, and there are rules about how this amount is expressed on a quote/invoice.

It would not include VAT on the labour/services provided by the trader themselves because to do so would be illegal. Which is the crux of this dilemma - the labour/services became VATable after the quote had been provided.

Sandyb63_2

If you were quoted for the work and paid in full on completion that is the end of the ‘contract’ and you have nothing more to pay.
Had this builder included VAT in his original quotation you may possibly not have gone ahead with them and used someone else cheaper - at that time you had that choice, to send you a bill for the VAT at this late stage is unjust and a try on, please do not fall for it.
The responsible for being registered for VAT is solely down to your builder and it is not your problem.

Cherubim135

If you were quoted a price for a service and the consideration for the service is money, the price is deemed to be VAT inclusive unless the contract states otherwise. This comes from S19(2) VATA 1994. So the people that are saying you have no obligation to pay anything further if the quote was silent on VAT are legally correct. But this question has been posted as a "moral dilemma" for a reason.

You can check if the VAT registration number of a trader is valid on HMRC website. I tried to include a link in this post but was unable to. I suggest you just search for "HMRC check a UK VAT number" and you should find the correct page. This service wiill tell you who the VAT number on your invoice belongs to but it won't tell you the date that VAT registration was effective from.

The comments about the trader not realising that he should be registered for VAT until his accountant or someone similar alerted him to the need to register for VAT could also be correct.

Further the comments above about the trader being able to reclaim VAT on goods that he purchased for your contract are also correct. Input VAT on goods can even be reclaimed before a trader registered for VAT if, amongst other things, the goods were purchased within 4 years prior to registration for the purposes of the VATable trade and the trader still had the goods at the date of registration (Regulation 111 of the VAT Regulations 1995). Therefore the trader should be able to recover the input VAT on the goods used for your project even if they were purchased before he was VAT registered. Had the trader continued as a non VATable business he would not be able to reclaim the VAT on the materials purchased for your project. That is to say the materials for your project to the trader became cheaper (providing the trader bought them from businesses that were themselves VAT registered - which most building merchants will be).

Therefore I would:

1. Check the HMRC website to confirm that the trader is VAT registered. In the event that the trader is VAT registered I would consider:
   1. what the output VAT is on the labour element only (ie exclude the materials cost);
   2. whether I can afford to pay the additional cost;
   3. whether I think that the work was of a good quality; and
   4. whether I thought I may wish to use this trader again.
2. I would consider an additional payment. Albeit this could be anywhere between £0 and the VAT on the labour element only, depending upon the answers to the questions at point 1 above.

JayD

In the past, I have found HMRC are very helpful with enquiries. I think you need their expertise - rather than a lot of educated guesses.

grumpy_codger

https://forums.moneysavingexpert.com/discussion/comment/81938495#Comment_81938495

Expertise?

Hmrc Reviews | Read Customer Service Reviews of online.hmrc.gov.uk

However, as it was said many times here, the dilemma here is MORAL, not legal. Do you really want their advice on a moral issue?

JayD

Yes, Grumpy. Expertise.

hatterles

https://forums.moneysavingexpert.com/discussion/comment/81935987#Comment_81935987

There is no such horrible rule - there is no guesswork involved - you only need to register once you have exceeded the registration threshold. There is a better way to help small contractors - let them follow the actual regulations rather than a complete misinterpretation of them. This is why someone starting a business should speak to an accountant (not listen to Dave Down the Pub or ChatGPT) before they start trading not when their first set of accounts is due. You may think that getting advice from a professional is expensive but it's not half as expensive as getting advice from an amateur.

mlz1413

As of April 1, 2024, the UK VAT registration threshold is a taxable turnover of £90,000 in any rolling 12-month period. Businesses must register if their turnover exceeds this limit, or if they expect it to within the next 30 days

Sounds like your builders didn't realise the vat threshold is rolling rather than yearly, and accountant didn't give him the heads up in time.

But that is on the builder and his accountant, not you.

As others have said the builder needs to go back and treat your bill as including vat, not ask for the vat on top a year later.

The builder is going to be in financial difficulty, he has just lost a chunk of money to vat he clearly hadn't planned for. But his invoice is not payable.

kinger101

Legally, no.

Morally, no.

RUSure

It's not a great situation for the tradesperson, especially if they've repeated this mistake with multiple clients (ouch), but ultimately if they invoiced you at the time and you paid it in good faith, it's their loss and should be treated as VAT inclusive I would say - Although if you want to use them again and like their work you may want to maintain a relationship and could negotiate, i.e. go 50:50 if you were feeling generous…