Paying the builder cash...

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...and not paying VAT is dodgy, right?

@dotdashdashdash

To be honest, I'm not sure what extra protection we'll get paying by bank transfer. We paid our last builder by bank transfer and he did a shit job (paid in installments and we never paid the last installment) but he disappeared without a trace and we had to pay for stuff to be put right.

So I don't really care how I pay. I do care about tax evasion though!

I suspect he's said it bacause this (financial) year he isn't subject to VAT, but next year he will be.

On a single £90k job, that alone will make him liable to VAT registration as it's over the £85k threshold!

Not only VAT, if he accepts more than 10,000 euros in cash, the law requires him to register as a "high value trader" to counter money laundering!

www.gov.uk/guidance/money-laundering-regulations-high-value-dealer-registration

A few hundred in cash is bad enough, but thousands is off the scale.

As long as you have a contract / signed receipt of any cash paid. Then paying in cash is fine...in installments as work progresses.

Its up to the builder how he does his accounts.

(weary sigh)

How you pay a contractor is nothing to do with tax if you get a receipt/invoice that shows you have exchanged that sum to that company (or person). Once you have a receipt then there is a record of the payment making tax evasion that much more of a challenge.

Obviously it also acts as proof that person/company actually did the job for guarantee purposes.

So it's not being "paid in cash" that's the red flag. It's the "you won't need an invoice will you ?" that is.

Many small business trade in a mixture of "cash and bank" quite legitimately. And it's a testament to the lack of business skills in the UK that most people can't grasp there are good reasons for it.

Some small businesses deliberately keep under the VAT threshold anyway. Meaning they don't charge VAT (but also can't claim it back). Which simplifies accounting a bit.

@BalancedIndividual

As long as you have a contract / signed receipt of any cash paid. Then paying in cash is fine...in installments as work progresses.

Its up to the builder how he does his accounts.

Trouble is that a tax dodging builder won't sign a contract/receipt as that lands them in trouble if they get found out. Tax evasion on a £90k contract would likely lead to a prison sentence for them, so only the most stupid would sign it as it's clear evidence of tax fraud if the money doesn't go through the builders' accounts/tax returns.

Piecing together snippets of information shared by the OP second-hand, it is possible that the builder is not currently VAT registered and legitimately does not need to be registered/re-registered (yet). There are some subtleties here which I think are getting lost in translation.

However, the OP should insist on proper receipts and also be cautious. This sounds like a big job, and the builder may not have much experience of project managing such a high-value job if he's currently not registered for VAT.

Pay him however, but get a receipt.

So long as you have receipts, you have the same proof of payment as a transfer.

His tax matters are his business. You will have done nothing wrong.

I'm not sure why paying cash means something won't be finished? Of course the instalments need to have a reasonable one at the end that you only pay when done.

Paying less more frequently may work best.

My DH is a builder and clients often ask him if they can pay in cash so it can be cheaper. He has to decline because its really quite difficult to spend large amounts of cash these days.

The builders merchants won't take it and his staff are all on the books so he can't get rid of it there. God knows how your builder is going to manage when the cost is £90k.

ProfessorSlocombe no need for your weary sigh. It isn't the paying cash that I was enquiring about, it was the evading VAT. Which the builder has said will happen should we choose to pay in cash.

God knows how your builder is going to manage when the cost is £90k

Well, quite. Does strike me as odd!

And don't have a general fear of paying cash like lots of mumsnetters do - we've paid cash for lots of work we've had done. And have received invoices and receipts for it.

@dotdashdashdash

ProfessorSlocombe no need for your weary sigh. It isn't the paying cash that I was enquiring about, it was the evading VAT. Which the builder has said will happen should we choose to pay in cash.

God knows how your builder is going to manage when the cost is £90k

Well, quite. Does strike me as odd!

He may well pay his staff/subbies "off the books" too, as that's a common way to use the cash. That saves him/his staff their tax/NIC too!

It is possible that he is looking to split the revenue so that he comes in under the VAT threshold at least in one year.

@GnomeDePlume

It is possible that he is looking to split the revenue so that he comes in under the VAT threshold at least in one year.

It's "possible" but unlikely as VAT registration threshold is a rolling 12 months period, not a fixed financial/tax year.

Anyway, on a £90k job, surely it will be payment by instalments as a job like that is going to take a number of weeks/months.

If the circumstances are right, he could still avoid VAT registration by invoicing properly in stages over 2/3/4 months as the work progresses.

@dotdashdashdash

ProfessorSlocombe no need for your weary sigh. It isn't the paying cash that I was enquiring about, it was the evading VAT. Which the builder has said will happen should we choose to pay in cash.

God knows how your builder is going to manage when the cost is £90k

Well, quite. Does strike me as odd!

It's not clear whether he would be evading VAT. From what you've said, he might just be avoiding it.

It's not clear whether he would be evading VAT. From what you've said, he might just be avoiding it.

Well that's partially why I was asking. Is it dodgy or not? The answer is, maybe.

@dotdashdashdash

It's not clear whether he would be evading VAT. From what you've said, he might just be avoiding it.

Well that's partially why I was asking. Is it dodgy or not? The answer is, maybe.

No, the answer to is it dodgy is: yes. Is it illegal? Maybe. You can’t really be still considering this after all the responses you’ve had?!

@dotdashdashdash

Sparklfairy

It's a big job. Like £90k

That's dodgy! The threshold for being VAT registered is a turnover of £85k a year.

My dh is a self employed roofer, and went VAT registered as at that point his turnover was £83k so by April he'd definitely be over the threshold as he's booked up weeks in advance.

I'd thoroughly recommend that you don't do this! Particularly on a project of this size. You won't have any comeback if there are problems, and if you sell the house then you won't have receipts etc.
Personally, I wouldn't use a trades person who suggested this - and I know a lot!

You can’t really be still considering this after all the responses you’ve had?!

No, we've employed someone else.

If it was for tax evasion, in certain careers you could find your job at risk if it was found out.
Not a risk I’d want to take with such a large amount as it would definitely look really bad if it was ever found out.

In certain professions you would go to jail if you engaged in tax evasion on a personal level eg banking, legal, accountancy. If in business you would become a deliberate tax defaulter and could get 100% penalties and your photo on HMRCs website.