OT(ish) - VAT registration - one for the builders

[David WE Roberts]

We are currently getting quotes from builders to do the major work on
remodelling the back of our house.
We plan for some DIY involvement but tearing the rear ground floor wall off
the house and leaving the upstairs hanging on some variety of sky hook is
not within our current ambitions.

First one has come in, and was {cough} how much?
The builder is VAT regitered and the VAT was {COUGH -HOW MUCH?}.

We had another builder round to quote, who hasn't yet got back to us with a
quote but he also passed the details onto a mate (checked with us) who came
round to see us.
This mate is not VAT registered.

Now the difference in a price, if you assume 50% labour and 50% materials,
should be about 10% of the total between non-VAT registered and VAT
registered.
This can be the difference between just affordable and not affordable.

So is there a level of job which fits neatly with a non-VAT regitered
builder, such that it gives a decent return but doesn't take them over the
limit for VAT registration, and does the building community tend to steer
the smaller non-VAT registered builders towards these jobs and keep the
bigger jobs for the VAT registered crowd?

It does seem to make sense, and our non-VAT builder did tell us that has
turned down at least one job because it would take him over the VAT
threshold.

If this idea is valid (and it does seem to make some sense) then how does
the small builder avoid VAT registration?
As I see it there are a few main ways.
(1) Take a large proportion of small jobs which keep you busy but don't
break the budget.
(2) Take larger jobs but space them out so you only work say 6-9 months of
the year.
(3) Take larger jobs but do them 'slow and steady' at a lower hourly rate
for labour to keep occupied all year and keep a steady income without the
temptation to spend the spare cash. This especially if you really enjoy the
job so wouldn't know what to do with 3 months a year off.

I am ignoring any "do a few large jobs for the accountant/tax man and boost
your take home with a steady stream of foreigners".

All in all, it seems there should be a 10% discount for using VAT
unregistered builders.
The only concern being if any decent builder will generate enough annual
turnover to have to register for VAT.

Cheers

Dave R
--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

(\__/)
(='.'=)
(")_(")

 

[larkim]

We are currently getting quotes from builders to do the major work on
remodelling the back of our house.
We plan for some DIY involvement but tearing the rear ground floor wall off
the house and leaving the upstairs hanging on some variety of sky hook is
not within our current ambitions.

First one has come in, and was {cough} how much?
The builder is VAT regitered and the VAT was {COUGH -HOW MUCH?}.

We had another builder round to quote, who hasn't yet got back to us witha
quote but he also passed the details onto a mate (checked with us) who came
round to see us.
This mate is not VAT registered.

Now the difference in a price, if you assume 50% labour and 50% materials,
should be about 10% of the total between non-VAT registered and VAT
registered.
This can be the difference between just affordable and not affordable.

So is there a level of job which fits neatly with a non-VAT regitered
builder, such that it gives a decent return but doesn't take them over the
limit for VAT registration, and does the building community tend to steer
the smaller non-VAT registered builders towards these jobs and keep the
bigger jobs for the VAT registered crowd?

It does seem to make sense, and our non-VAT builder did tell us that has
turned down at least one job because it would take him over the VAT
threshold.

If this idea is valid (and it does seem to make some sense) then how does
the small builder avoid VAT registration?
As I see it there are a few main ways.
(1) Take a large proportion of small jobs which keep you busy but don't
break the budget.
(2) Take larger jobs but space them out so you only work say 6-9 months of
the year.
(3) Take larger jobs but do them 'slow and steady' at a lower hourly rate
for labour to keep occupied all year and keep a steady income without the
temptation to spend the spare cash. This especially if you really enjoy the
job so wouldn't know what to do with 3 months a year off.

I am ignoring any "do a few large jobs for the accountant/tax man and boost
your take home with a steady stream of foreigners".

All in all, it seems there should be a 10% discount for using VAT
unregistered builders.
The only concern being if any decent builder will generate enough annual
turnover to have to register for VAT.

Cheers

Dave R
--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

(\__/)
(='.'=)
(")_(")

Agree on the turnover measure - if a builder can only bill about £73k
in the year before mandatory registration, and if you assume (as you
are doing) that labour is 50% of his billing (including allowances for
employers NIC, pensions (!?), etc) then the most that he can be
extracting in equivalent salary is c. £35k. Once he has a mate
involved too, his salary would be closer to £20k; not much for the
risk of self employment, weather, rectification costs, etc etc.

Matt

 

[Robin]

Agree on the turnover measure - if a builder can only bill about £73k

in the year before mandatory registration, and if you assume (as you
are doing) that labour is 50% of his billing (including allowances for
employers NIC, pensions (!?), etc) then the most that he can be
extracting in equivalent salary is c. £35k. Once he has a mate
involved too, his salary would be closer to £20k; not much for the
risk of self employment, weather, rectification costs, etc etc.

FWIW many sole traders used to get their clients to buy the materials so
the traders could quite legitimately avoid compulsory VAT registration.
The clever ones even knew the formula to recite which meant they could
legitimately buy the materials as agent for the client without the
client needing to go anywhere near a merchant - and no doubt pocket
their traders' discount

 

[Man at B&Q]

We are currently getting quotes from builders to do the major work on
remodelling the back of our house.
We plan for some DIY involvement but tearing the rear ground floor wall off
the house and leaving the upstairs hanging on some variety of sky hook is
not within our current ambitions.

First one has come in, and was {cough} how much?
The builder is VAT regitered and the VAT was {COUGH -HOW MUCH?}.

We had another builder round to quote, who hasn't yet got back to us witha
quote but he also passed the details onto a mate (checked with us) who came
round to see us.
This mate is not VAT registered.

Now the difference in a price, if you assume 50% labour and 50% materials,
should be about 10% of the total between non-VAT registered and VAT
registered.
This can be the difference between just affordable and not affordable.

So is there a level of job which fits neatly with a non-VAT regitered
builder, such that it gives a decent return but doesn't take them over the
limit for VAT registration, and does the building community tend to steer
the smaller non-VAT registered builders towards these jobs and keep the
bigger jobs for the VAT registered crowd?

It does seem to make sense, and our non-VAT builder did tell us that has
turned down at least one job because it would take him over the VAT
threshold.

If this idea is valid (and it does seem to make some sense) then how does
the small builder avoid VAT registration?
As I see it there are a few main ways.
(1) Take a large proportion of small jobs which keep you busy but don't
break the budget.
(2) Take larger jobs but space them out so you only work say 6-9 months of
the year.
(3) Take larger jobs but do them 'slow and steady' at a lower hourly rate
for labour to keep occupied all year and keep a steady income without the
temptation to spend the spare cash. This especially if you really enjoy the
job so wouldn't know what to do with 3 months a year off.

(4) Get the client to buy the materials.
(5) Get the client to engage other trades individually.
(6) Get the client to pay cash-in-hand.
(7) Lie to HMRC.

MBQ

 

[harry]

(4) Get the client to buy the materials.
(5) Get the client to engage other trades individually.
(6) Get the client to pay cash-in-hand.
(7) Lie to HMRC.

(8) Completely demolish the house & build a new one.
Obtain the paperwork to reclaim the VAT before you start. Can work
out a lot more sensible.

 

[David WE Roberts]

FWIW many sole traders used to get their clients to buy the materials so
the traders could quite legitimately avoid compulsory VAT registration.
The clever ones even knew the formula to recite which meant they could
legitimately buy the materials as agent for the client without the client
needing to go anywhere near a merchant - and no doubt pocket their
traders' discount

We are quite happy to source the materials through builders merchants - we
already have a couple of 'Trade' accounts from previous projects.
One additional way is to pay labourers directly (we discussed this with our
non-VAT man but he said that as he was not registered this didn't matter).
Two man band we are dealing with - so £20k a year is an interesting figure.
Perhaps we will have to feed him as well to keep his overheads down ;-)

--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

(\__/)
(='.'=)
(")_(")

 

[David WE Roberts]

(4) Get the client to buy the materials.
(5) Get the client to engage other trades individually.
(6) Get the client to pay cash-in-hand.
(7) Lie to HMRC.

*(8) Completely demolish the house & build a new one.
*Obtain the paperwork to reclaim the VAT before you start. Can work
*out a lot more sensible.

So far the neighbours in the other semi seeem to be O.K. with our plans.
However I think that may be a step too far.

--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

(\__/)
(='.'=)
(")_(")

 

[The Medway Handyman]

We are currently getting quotes from builders to do the major work on
remodelling the back of our house.
We plan for some DIY involvement but tearing the rear ground floor wall
off the house and leaving the upstairs hanging on some variety of sky
hook is not within our current ambitions.

Wimp

First one has come in, and was {cough} how much?
The builder is VAT regitered and the VAT was {COUGH -HOW MUCH?}.

We had another builder round to quote, who hasn't yet got back to us
with a quote but he also passed the details onto a mate (checked with
us) who came round to see us.
This mate is not VAT registered.

Now the difference in a price, if you assume 50% labour and 50%
materials, should be about 10% of the total between non-VAT registered
and VAT registered.
This can be the difference between just affordable and not affordable.

VAT is chargeable on materials & labour, not just materials.

It is an utterly despicable tax IMO.

So is there a level of job which fits neatly with a non-VAT regitered
builder, such that it gives a decent return but doesn't take them over
the limit for VAT registration, and does the building community tend to
steer the smaller non-VAT registered builders towards these jobs and
keep the bigger jobs for the VAT registered crowd?

It does seem to make sense, and our non-VAT builder did tell us that has
turned down at least one job because it would take him over the VAT
threshold.

So would I.

If this idea is valid (and it does seem to make some sense) then how
does the small builder avoid VAT registration?

As I see it there are a few main ways.
(1) Take a large proportion of small jobs which keep you busy but don't
break the budget.

That's how my business works. "Turnover is vanity, profit is sanity".

If I can make a good margin on something - like decking - I will buy the
materials & mark them up. If I can't - say fence panels - I get the
customer to buy them if possible.

If I hit the VAT threshold I would either have to charge 20% more - and
become uncompetitive - or take 20% less & not earn what I want to.

(2) Take larger jobs but space them out so you only work say 6-9 months
of the year.
(3) Take larger jobs but do them 'slow and steady' at a lower hourly
rate for labour to keep occupied all year and keep a steady income
without the temptation to spend the spare cash. This especially if you
really enjoy the job so wouldn't know what to do with 3 months a year off.

I am ignoring any "do a few large jobs for the accountant/tax man and
boost your take home with a steady stream of foreigners".

Heaven forbid.

All in all, it seems there should be a 10% discount for using VAT
unregistered builders.

They have higher overheads. They can't reclaim VAT on fuel, tools,
stationary & many other things.

The only concern being if any decent builder will generate enough annual
turnover to have to register for VAT.

Current threshold is £73K year, just over £6K a month.

 

[ARWadsworth]

Current threshold is £73K year, just over £6K a month.

Is dennis not our resident VAT expert?

 

[Roger Mills]

VAT is chargeable on materials & labour, not just materials.

We know that! The point is that you'll have to pay VAT on the materials
even if using a non-VAT registered tradesman - because he'll have to pay
it and can't reclaim it. So you only save on the labour if he isn't
registered for VAT.
--
Cheers,
Roger
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Please reply to Newsgroup. Whilst email address is valid, it is seldom
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[David WE Roberts]

We know that! The point is that you'll have to pay VAT on the materials
even if using a non-VAT registered tradesman - because he'll have to pay
it and can't reclaim it. So you only save on the labour if he isn't
registered for VAT.

Yes, that was the implied calculation.
20% VAT on everything
50% is materials so you have to pay VAT anyway.
50% is labour so you can avoid paying VAT if the supplier of labour is not
VAT registered.
So the saving is 50% of 20% - which is 10%.
So the easy rule of thumb is that an estimate for the same materials and
labour should be 10% cheaper if the supplier is not VAT registered.
Simples

--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

(\__/)
(='.'=)
(")_(")

 

[A.Lee]

Yes, that was the implied calculation.
20% VAT on everything
50% is materials so you have to pay VAT anyway.
50% is labour so you can avoid paying VAT if the supplier of labour is not
VAT registered.
So the saving is 50% of 20% - which is 10%.
So the easy rule of thumb is that an estimate for the same materials and
labour should be 10% cheaper if the supplier is not VAT registered.
Simples

However, if you take your 50/50 calculation, if the quotes are the same,
then the VAT registered builder will be on the same profit as an
unregistered one, as he claims back the VAT on money spent.

I dont think building the shell will be a 50/50 split though. It'll be
more like 30/70 materials/labour, as the expensive part of building is
the fitting out, rather than putting up the walls/floors/roofs.

 

[David WE Roberts]

However, if you take your 50/50 calculation, if the quotes are the same,
then the VAT registered builder will be on the same profit as an
unregistered one, as he claims back the VAT on money spent.

I don't think so.
If the quotes are the same, then one builder will be collecting VAT on the
labour which will go straight through.
I will be paying 10% to the government and the builder will be acting as an
unpaid tax collector.
Which means that for the same gross bill the VAT regitered builder will be
keeping 10% less of the money.

I dont think building the shell will be a 50/50 split though. It'll be
more like 30/70 materials/labour, as the expensive part of building is
the fitting out, rather than putting up the walls/floors/roofs.

--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

(\__/)
(='.'=)
(")_(")

 

[ARWadsworth]

Man at B&Q wrote:

Ouch

(6) Get the client to pay cash-in-hand.
(7) Lie to HMRC.

And all our NI contributions will pay for the heart attack treatment that
you have just caused our dennis to suffer.

 

[AJH]

However the planners might not be agreeable to a semi- turning into a
lop-sided semi with your side bigger than the other half.

15 years ago I lived in a 2 bed semi with a mirror image of it next
door, now next door has been extended twice and is 3-4 times bigger.

AJH

 

[hugh]

*(8) Completely demolish the house & build a new one.
*Obtain the paperwork to reclaim the VAT before you start. Can work
*out a lot more sensible.

So far the neighbours in the other semi seeem to be O.K. with our
plans.
However I think that may be a step too far.

You need planning permission to demolish a house.

 

[harry]

*(8) Completely demolish the house  & build a new one.
*Obtain the paperwork to reclaim the VAT before you start.  Can work
*out a lot more sensible.

So far the neighbours in the other semi seeem to be O.K. with our plans.
However I think that may be a step too far.

Ah. Missed the semi-detached bit.

 

[David WE Roberts]

However, if you take your 50/50 calculation, if the quotes are the same,
then the VAT registered builder will be on the same profit as an
unregistered one, as he claims back the VAT on money spent.

I dont think building the shell will be a 50/50 split though. It'll be
more like 30/70 materials/labour, as the expensive part of building is
the fitting out, rather than putting up the walls/floors/roofs.

The key thing is profit for the builder

Hmmm.....
VAT reg.
£500 materials + 20% VAT - £600
£500 labour and profit + 20% VAT - £600
Cost to punter - £1200.

Material cost £500 (VAT reclaimed)
Labour cost and profit £500 (VAT passed on)
Total gross revenue to builder £500

Non-VAT
£500 materials + 20% VAT - £600
£500 labour and profit - £500
Cost to punter - £1100.

Material cost £600 (VAT not reclaimed)
Labour cost and profit £500
Total gross revenue to builder £500

So the net return to the builder should be the same - you don't penalise the
builder directly for being VAT registered.
However you do penalise the customer for using a VAT registered builder.

If the VAT registered builder was to match the non-VAT registered builder he
would have to knock £100 of his (labour + profit + VAT) figure which means
he would have to reduce his labour costs and/or his profit.

It will be interesting to see what the split is between materials and
labour.
If it is 30/70 then the non-VAT quotes should be significantly cheaper.
The VAT registered builder also gets to claim back less VAT.

Material costs will be significant because they will include bi-fold doors,
a new boiler, and a complete flue for a wood burning stove, a veranda and a
fibreglass balcony with glass surround and stainless steel rails.

Cheers

Dave R

--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

(\__/)
(='.'=)
(")_(")

 

[Man at B&Q]

Man at B&Q wrote:

Ouch


And all our NI contributions will pay for the heart attack treatment that
you have just caused our dennis to suffer.

You maen it wasn't terminal?

MBQ

 

[David WE Roberts]

However, if you take your 50/50 calculation, if the quotes are the same,
then the VAT registered builder will be on the same profit as an
unregistered one, as he claims back the VAT on money spent.

I dont think building the shell will be a 50/50 split though. It'll be
more like 30/70 materials/labour, as the expensive part of building is
the fitting out, rather than putting up the walls/floors/roofs.

and one more thing.
First suggestions of time were 6-8 weeks (no mention of number of people)
and 12 weeks from 2 man outfit.
So let us guesstimate that the labour is about 24 man weeks
Which is 120 man days.
Let us assume a price of £200 per man day to cover labour.
That would give a rough labour cost of £24,000.
If this was 70% of the cost I would be over the moon

--
No plan survives contact with the enemy.
[Not even bunny]

Helmuth von Moltke the Elder

(\__/)
(='.'=)
(")_(")