Help with VAT Query on builders bill?

[para1020]

Looking for some wise heads to advise if I've got this all wrong on VAT.

Using a builder on extension build and have been advised that he subcontracts plumbing and electrics ( all VAT registered )

For example subby quotes builders £2500 plus VAT =£3000, builder then charges me £3000 plus VAT = £3600. Therefore I have paid £1100 in VAT.

Is this correct?

 

[alan333]

No it'll be £2500 plus vat.

 

[para1020]

alan333, thanks for reply. the example I've shown is how my builder plans to charge this. He seemed genuinely surprised when I advised that this was not a good deal for me. Is this how it would normally be charged?

 

[AlanE]

Subbie charges builder £2500 + Vat (£500)

Builder pays subbie £2500 + Vat (£500) and claims back the VAT he paid subbie when he completes his VAT Return.

Builder adds £500 to subbies bill, to cover his overheads and profit etc. (this is NOT the subbies VAT element), and charges you £3000 + VAT ( £600)

So total you pay for the job is £3,600 which includes £600 VAT in total.

Government receives £600, in effect £500 from subbie and £100 from builder, but in a convoluted way from you. That's the way VAT system works.

 

[freddiemercurystwin]

So the OP is paying £600 to the builder to manage the plumber & electrician?

 

[para1020]

Guys thanks for the responses. I've already been told by builder that management fee for the trades is already included in the original price and nothing is added to subbies quotes for this purpose.

 

[alan333]

VAT works a bit like a circle. ie the builder charges you the £2500 the plumber quoted plus £500 of VAT. He pays that £3000 to the plumber and the plumber pays the govt the £500. The builder would not be due to pay the govt any VAT in this case, cos he passed it along to the plumber.

It gets a bit complicated tho, the plumber has already bought materials for the job, and has paid VAT on them. So let's assume he's bought £1000 of materials plus VAT of £200. The amount he sends the govt is the £500 he charged less the £200 he's already paid out on materials, so he sends them £300.

The govt get the "missing" £200 from the next company in the line, ie the place the plumber bought his materials. And so it goes on.

 

[D_Hailsham]

I've already been told by builder that management fee for the trades is already included in the original price and nothing is added to subbies quotes for this purpose.

Do you mean that the £2500 (+ £500 VAT) includes the "management fee"? If so, the builder should not be charging you an extra £600 VAT. Presumably he is getting a percentage (in cash?) from the subbie for putting the job his way.

The "builder" doesn't understand the VAT system, which is understandable.

I was told, many years ago, by a landscape gardener that if I bought the materials myself I would save VAT. I don't think he realized that I would be paying VAT direct to the supplier. He obviously thought the same as the OP's builder!

 

[FiremanT]

[QUOTE="D_Hailsham, post: 3402007, member: 65839
The "builder" doesn't understand the VAT system, which is understandable.

I was told, many years ago, by a landscape gardener that if I bought the materials myself I would save VAT. I don't think he realized that I would be paying VAT direct to the supplier. He obviously thought the same as the OP's builder![/QUOTE]

No, it isn't understandable, IMO. VAT is actually very easy to understand, and if you are running a business, it s your responsibility to get these things right.

Re your LG, of he is VAT registered, he probably meant that if you buy the gear, and pay him cash, he will ignore the VAT by putting the readies into his back pocket.

 

[D_Hailsham]

Re your LG, of he is VAT registered, he probably meant that if you buy the gear, and pay him cash, he will ignore the VAT by putting the readies into his back pocket.

The LG's word to me were, "If you buy the materials yourself, you won't have to pay me the VAT on them." I knew that was nonsense, but didn't bother to argue with him. It did make me wonder if he was adding VAT to the vat-inclusive cost of the materials!

He went out of business not long after. Something to do with Tax and VAT problems, I heard.

Pity, as he built me a first-class patio.