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Legal matters

Builders and VAT

8 replies

bisousjaz · 28/02/2012 17:33

Hi,

We entered a contract with a builder last May (to tune of 115k) to build an extension and loft conversion. He informed us that he could classify some of the work as "new build" so it would not attract VAT and the loft he said was a "grey area" which we could work around.

This represented a saving of 20+k so we went with it. He invoiced weekly (indicating VAT @ 0% on each invoice) and we paid via bank transfer.

After paying over 90k towards this contract, we've now fallen out (as one always does with builders) over issues of quality, costs, timescales and I'm concerned that he might now try and present me with a VAT invoice for 20% of everything to date.

I did some basic investigations and called HMRC and the work we are having done (all of it) should actually attract VAT at standard rate.

We did have contracts, project plans, payment schedules etc.. but nothing signed. In an SMS he indicated his intention to classify work as "new build" and the "grey area". As I understand it, and from speaking with a solicitor its not unusual for building contracts to not be signed.

Basically can he chase me for VAT if HMRC find out he's not declared everything and come after him?

Thank you...

OP posts:
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DonInKillerHeels · 28/02/2012 20:30

As far as I'm aware, it is illegal for him not to charge VAT at 20% (unless it's e.g. a listed building that is zero rated for VAT), and legally you have to pay it. Your builder sounds dodgy as hell, sorry.

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curiousparent · 28/02/2012 20:32

What work has he indicated has been done on the invoices? I know you say he has put the VAT rate as 0%, but has he itemised the work as being to a new domestic build?

If for any reason HMRC find out (and they can quite easily ask for documentation to prove that the property is a new build and therefore is zero rated) they would chase him for the VAT. He could then come to you for this, although I think he would have to take you to court, but relying on him saying he would classify it as something else would not be a good defense for you! You would have needed a written quote or something similar that showed that the total payable was x amount and that VAT was not due (and not because you are trying to deceive the system) to have any hope of having a good defense.

I think really a lot hinges on what he has already put on the invoices you have and also on any other paperwork around that could be relied upon as evidence.

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MrAnchovy · 28/02/2012 21:32

If there is a contract that you have both discussed and agreed (but not signed) then it is likely that this will be viewed as the terms of your agreement, unless there is evidence to the contrary. What does this contract say about the price of £115k and VAT? The exact words are important.

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bisousjaz · 29/02/2012 08:35

Thanks all for your quick responses. Yes, I know its probably dodgy, but when someone offers to save you 20k by simply classifying something in a certain way, you naiively assume they know what they're doing.

All invoices indicated - total value of works completed (A), total paid to date (B), VAT @ 0% (ZERO) and total due for payment (A-B). For description of works it says "see attached" and there is a very comprehensive breakdown of what is included (e.g. 500 windows, 750 exterior render, 200 drline utility, ...) in the attached schedule.

I need to locate the original quotation and see what it says about VAT on that (out of country at prez).

So it's my responsibility to know what is and isn't eligible for VAT? I know this is probably an obvious situation but supposing I was a complete ditz and genuinely didn't know the kind of development work he was proposing was not VAT exempt?

The only thing I definitely know I have is a text message that I sent saying that we'd be happy to proceed if he could guarantee that the price was inclusive of VAT. To which he responded "...as discussed, VAT on new build is 0%..." (referring to the new superstructure he was building - and attached directly to our building), "...the only dodgy area is the (loft) conversion but i'm sure we can swing that...".

Anyway - thanks again, all. It hasn't come to it yet, but I just wanted to know what my position might be if it got nasty. If I unearth more documentation I'll post here.

Thx
Jaz

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curiousparent · 29/02/2012 10:16

Thinking about it he probably isn't going to try and change the presentation of the invoices you because i am guessing he has done this before and if so the HMRC will have a very close look at all of the works he has zero rated and either visit those premises and/or look at planning permissions etc to see if they genuinely should be zero rated. They will then slap a bill onto him for the unpaid VAT and also surcharge him as it would be actual fraud rather than an oversight. They would not care whether he could claim this back from his clients or not - it would be irrelevant to them and so would be a big burden for him. I would imagine he would not want this to potentially come to light as I would say he has more to lose from it than you do!

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MrAnchovy · 29/02/2012 12:23

So it's my responsibility to know what is and isn't eligible for VAT?

No it isn't, it is absolutely his responsibility to charge the correct rate of VAT. The question is, whether the price he has quoted to you is inclusive of VAT or not. If he quoted you an inclusive price, he probably can't charge you any more for VAT. But if his quote was net and the rate of VAT was expected to be 0% but becomes 20% he probably can.

Bear in mind though that if he thinks he can get away with zero rating there is no advantage to him in charging you VAT - he would have to hand the money straight over to HMRC ('making a mistake' in charging the wrong rate of VAT means a civil penalty and a slap on the wrist for a first offence, pocket £20k of VAT and you'll be on a criminal charge).

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violathing · 29/02/2012 12:25

If he hasn't charged you VAT HMRC will regards your payments as incl VAT. For eg if you had paid him £100,000 = £80,000 goods and £20K vat. They would ask him for the £20K assuming of course he is VAT registered which you have to be if T/over > £73000

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MrAnchovy · 29/02/2012 13:37

If he hasn't charged you VAT HMRC will regards your payments as incl VAT.
This is not correct. The invoices clearly state that the consideration for the supply exclusive of VAT is £x (totalling £90k) so HMRC will look for 20% VAT on top.

Even if there were no invoice or other evidence that the £90k was exclusive of VAT so HMRC did treat that sum as VAT inclusive, the builder could still come to the client and demand an additional 20% if the effect of the contract is that VAT is to be paid by the client in addition to the price of £115k

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