Getting a builder to 5% their invoice

by **Kitty Kat** on Fri Dec 16, 2011 1:06 pm

I understand the rules as to the reduced rate and I am confident they apply in my client's case (non-residential converted to residential). However, he will be using countless people to do bits and bobs of the conversion and, it's almost guaranteed, at least one of them will baulk at the 5% rate and insist in charging the full 20%.

I know you can get ZR confirmation from HMRC, but can you get some sort of reduced rate certificate to wave at the workers?

by **pawncob** on Fri Dec 16, 2011 6:51 pm

I've always found the 5% charge is at the whim of the builder. If you can't convince him it's 5% he can refer it to HMRC for a decision.
Hardly practical if you've got 25 subbies at work. Can't he register for VAT and reclaim?

by **section 44** on Sat Dec 17, 2011 7:49 pm

Will payment be after completion? If so then simply refuse to pay any more than price plus VAT at 5%.

by **pawncob** on Sat Dec 17, 2011 7:56 pm

@section 44

If you sent someone an invoice and they refused to pay the correct VAT,how would you feel?

by **section 44** on Sat Dec 17, 2011 11:39 pm

correct VAT?

by **Kitty Kat** on Mon Dec 19, 2011 10:28 am

Thanks all.

On the 'correct VAT' note, someone has suggested to me that if the rate should have been 5% and 20% was charged, HMRC refuse to refund any of it as it is not VAT correctly charged. Can anyone confirm that though, seems harsh!

Also, surely if they register, convert and try and recover, the fact they will be renting the property out (or at least that is the current intention) will mean no taxable supply and so no recovery?

by **Generix** on Mon Dec 19, 2011 11:12 am

Kitty Kat wrote:Thanks all.

On the 'correct VAT' note, someone has suggested to me that if the rate should have been 5% and 20% was charged, HMRC refuse to refund any of it as it is not VAT correctly charged. Can anyone confirm that though, seems harsh!

Also, surely if they register, convert and try and recover, the fact they will be renting the property out (or at least that is the current intention) will mean no taxable supply and so no recovery?

(1) Yes technically that is correct, however, usually HMRC would accept there is no loss of revenue and leave it be. No guarantee of this though - especially if the person charging the VAT has done a runner with it.

(2) If the intention is to let it as residential then no recovery. If the intention is to sell it, but due to market conditions they can only let it and intend to sell it when market conditions improve then they are permitted some recovery. There was a business brief on this some time ago (when the 'economic crisis first started and all the developers couldn't sell their new builds and then were getting stung for the irrecoverable VAT).

Alternative is set up Newco2 and sell the property to them for ZR, and then they can let it out - co 1 has made a taxable sale and can recover, co 2 is incurring no VAT on purchase so no VAT to recover. Am sure there might be a SDLT cost though, as well as other potential tax implications.

by **section 44** on Mon Dec 19, 2011 4:52 pm

Generix wrote:Alternative is set up Newco2 and sell the property to them for ZR, and then they can let it out - co 1 has made a taxable sale and can recover, co 2 is incurring no VAT on purchase so no VAT to recover. Am sure there might be a SDLT cost though, as well as other potential tax implications.

That wouldn't mitigate any risk in respect of point 1 (i.e. inability to recover "VAT" incorrectly charged).

by **Generix** on Mon Dec 19, 2011 5:49 pm

section 44 wrote:
Generix wrote:Alternative is set up Newco2 and sell the property to them for ZR, and then they can let it out - co 1 has made a taxable sale and can recover, co 2 is incurring no VAT on purchase so no VAT to recover. Am sure there might be a SDLT cost though, as well as other potential tax implications.

That wouldn't mitigate any risk in respect of point 1 (i.e. inability to recover "VAT" incorrectly charged).

True that - was suggesting this to get rid of any irrecoverable VAT from arising though.

To be honest if you have a written letter to your supplier setting out why you think the supply is within a specific schedule (in this case 7a?) I would expect them to at least respond in writing stating why they believe it doesn't fall into that category or else some sort of response stating why they think VAT should be charged at a higher rate - at which point you have some evidence you have taken reasonable steps to ascertain that VAT was charged correctly...like I said in b2b HMRC tend not to be so pedantic unless your supplier has done a runner - where you are using larger contractors this therefore shouldn't be so much of a problem.

by **Kitty Kat** on Tue Dec 20, 2011 10:46 am

Thanks all.

Our client is more concerned (from experience) that, although his main contractor will happily 5% their work, if he needs to get a sparky in to do a few hundred pounds of work (and by that I mean, several sparkys and thousands of pounds) some of them will insist on charging 20% out of ignorance (in the nicest possible way!).

We'll cross the bridge when we come to it I suppose