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Sam, Accountant
Category: Law
Satisfied Customers: 14165
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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There,I have recently purchased a house in London and

Customer Question

Hi there,
I have recently purchased a house in London and have a builder working on some renovations and extensions before I move in. The house is not a new-build and was occupied until May (just prior to when I purchased it). I am having a disagreement with my builder about the VAT that he should be levying on the services he is providing to me.
To take one example: I am trying to purchase a new kitchen through a wholesaler that my builder has put me in touch with. The kitchen-supplier cannot sell direct to the public, it has to sell to my builder. The kitchen-supplier has included VAT in the price of the kitchen. My builder claims that he needs to charge me another 20% for VAT on top of the price that the kitchen-supplier is charging him (which already includes 20% VAT). I do not believe that I should have to pay extra VAT - it is a Value Added Tax and the builder has added no value to the product. The builder should simply pass through the full price (including VAT) that the kitchen-supplier is charging him. In that case the builder would have paid the same amount of input VAT as the amount of output VAT he has collected. Am I correct?
If the builder did charge me an extra 20%, then that would predominantly be profit for him. Lets say the kitchen-supplier charges him £1000 for the kitchen, including VAT of about £167. If the builder then charges me £1200 for the kitchen, I would pay £200 of VAT to him and he would need to pay that extra £33 to HMRC (on top of the £167 VAT already included by the kitchen-supplier). That means that of the extra £200 the builder has charged me he would be keeping £167 for himself i.e. £200 less £33 for the extra VAT. Am I correct?
On the assumption that I am correct, I am concerned that my builder is overcharging me VAT on all the materials he is supplying for my house. I am also concerned that he is overcharging me VAT on any services provided to him by VAT-registered sub-contractors. I understand that he should charge me VAT on any labour he employs on the job. If I am being consistently overcharged what can I do to recover the VAT that I should not have been charged? It is a time and materials contract, so I wonder whether I might be able to review his invoices etc at the end of the job (when I want proof of the cost of the work he has undertaken).
Submitted: 2 years ago.
Category: Law
Expert:  Sam replied 2 years ago.
Thanks for your question
First you have NO recourse for making any claim of VAT back as you are a householder and this is a property that will become your main residence.
However you are being overchargeda s the charge that the builder suffers from his suppliers should merely be passed onto you.
So lets say the kitchen is £1000 (net of VAT) so the VAT is then £200 - so a total of £1200 and his provides £500 for labour costs then his bill to you should be
Kitchen (materials) £1000 (Net of VAT)
Labour £500
So total net costs £1500 then
VAT 20% £300
Total bill £1800
But I will advise that its normal for workmen to "mark up" the materials but this is not VAT doubled up, as they often get materials at cost price (like a grocer selling food items from the wholesaler then marking up his price in the shops ) so mark up to make a profit. But this should be clearly marked as such on the VAT invoice to you. so Materials marked up to £1200 then Labour of £500 - so total net £1700 plus VAT £340 - total bill £2040
Your other option is buy the materials yourself and just make use of his labour! Then you are not marked up on the materials which I could understand if this was happening.
Any labour he provides from his subcontractors will also have a 20% VAT charge on it so you could argue that you pay them directly - and unless THEY individually are VAT registered (which may be unlikely in the main) then you just pay the set labour costs
But as the builder seems to think he should double charge the VAT and has stated as such then he IS overcharging you and I would advise that you advise you will approach HMRC VAT to resolve this issue - and will only pay him the net costs of the materials and labour, and one lot of VAT on that amount - which is the CORRECT way.
So I agree that you are being overcharged on that basis.
VAT helpline Telephone: 0300(###) ###-#### ***** times: 8am to 6pm, Monday to Friday
Let me know if I can be of any further assistance, I'm off to bed now, so will reply to any response you provide tomorrow.
Customer: replied 2 years ago.

Thanks Sam.

So there's definitely no "overusing VAT" or anything similar? My builder has mentioned that a couple of times.

I suspect that a formal letter similar to the above might help to convince him to change his approach to charging for VAT. Are you able to provide that kind of thing or would I need to approach a local accounting firm for that? If the latter, do you know how I might find one?


Expert:  Sam replied 2 years ago.
Hi Anthony
Thanks for your response and apologies for the delay with mine, I was meeting with clients.
No - there is no using VAT the well known phrase that he should know,- is VAT is all about PASSING THE CHARGE ON when you have a cost (usually materials) that has suffered VAT that you then "sell" to a customer - you can then either
1) As the builder - mark up the cost to you (so add on an amount to the net value then charge VAT on the marked up net value OR
2) Sell the item at the net value it cost to you (the builder) and then charge the VAT you suffered - so just pass that charge on.
I am afraid we cannot enter into client representation through the work we do via Just Answer ( part of the terms we agree upon with them) but ANY local accountant to you (that has VAT experience) can write this letter for you to try and resolve this seemingly obvious over charge.
So I could draft one for you to send - but do agree this would be far better actually coming from an accountant - as its adds a certain legality to it!
Let me know if I can be of any further assistance, but it would be appreciated if you could rate (or click accept) to reflect the level of service I have provided, and this ensures that Just Answer credit me for my time