builder wants to avoid paying VAT

[pantshavenames]

We got a quote from a builder some months ago for a two storey extension. What with one thing and another we weren't in a position to go for it until now and he has gone over the threshold for VAT. He says he's happy for the price to stay the same, but the only way to do it is if we pay for things personally rather than through him. I understand that this is quite common when it comes to materials but that it's a bit more tricky regarding workforce.
Has anyone done a build like this? What do we need to think about? I think we need to make sure we have the right insurance but what safeguards can we have regarding the fixed price etc?
All help very gratefully received, this is the first building work we have ever had done and it is proving to be much less straightforward than we hoped.

Sorry to hear it's turning out a little tricky. This is a common problem though, no one likes paying VAT and to a certain extent the government should look a little more closely in to decriminalising all the people who think similarly. Sadly, the fact is that without a formal quote from your builder you have no way of holding him to any prices, standards or guarantees. This is a quote you won't be able to get as it would have to include VAT. The same is true of the invoices which you will be paying, unless you get individual ones from each tradesperson detailing the work done and as for appropriate protection again you're in a tricky spot if (and when) things go wrong. Of course you could get lucky and have a lovely guy who helps out the whole time and deals promptly with snags of all kinds. But that fact is even the best people make mistakes and if you operate outside of the usual guidelines you are likely to get your fingers burnt.

this great idea of dodging taxes works fine until too many people do it - at which point you are in Greece.

It's probably best not to become complicit in tax evasion. If you paid his staff directly you might also be enabling him or his staff to avoid PAYE and NIC.

Depending on what career you are in, you could be disbarred from your profession for engaging in this kind of deal.

We had quite a bit of building work done - not quite the scale of extension though. We got the materials - would go with builder and he show what was needed. We paid cash to him but always made sure that he had done more work than we had paid him for - so we knew if he walked off the job we would not be out of pocket.
He gave written estimates for the work and we checked he had insurance in place... Tbh it was fine. I think by buying the materials yourself you can be sure not are not over buying. Good luck with it all!

If you buy materials yourself, you will be charged VAT on them. The builder will not be responsible for any guarantee or returns on stuff he did not supply.

He says that basically, at the end of each week he'll go through all the work done, provide me with (presumably?) some invoices and I'll write the cheques to cover them. For materials that sounds fine I guess, in a way preferable because I 'all know how much he's spending, but I don't see how it will work with labour? If I'm paying his wages bill that seems dodgy as hell and will I then be their employer and be responsible/liable for health and safety? If they are regular sub contractors he uses and they invoice me directly, will I need to have insurance? Oh this feels like a nightmare. The thing is, I think he's not really thought it through himself.

Find another builder. Even if not dodgy, this plan seems far too difficult to manage.

We did this for our garden landscaping, well thought of local firm with their own suppliers. They ordered all materials and we paid cash/cheque on delivery. We just paid them the difference at the end of the job. Slightly different and definitely smaller scale.

If the trades people are self employed, then I don't see why you cannot pay them direct with the builder acting as Foreman.

If they are employees of the builder, I'm not so sure.

He's basically asking you to work on a 'cost plus' basis - which is a legitimate way of working. You need to remember though that anything missed/over ordered/damaged will be your responsibility, so it won't be a firm quote as such. You'll need to check invoices carefully, to make sure materials for other jobs haven't been put on there 'by mistake'. You also need to agree what amount he will take on top to cover his costs/profit.

Easy to get caught out on this, unless you are lucky enough to have a very honest builder.

Piglet - the OP would be paying VAT on the building cost anyway, so no difference to paying it on materials.

yes, but there was reference to the OP buying the materials direct, which has no effect on VAT.

Sorry - I thought you meant that if the builder bought them, there would be no VAT for the OP to pay.

If the builder were being dishonest and looking to evade VAT, he would surely ask the OP to pay him cash and then not account for everything correctly in his books?

There is a big difference between tax avoidance and tax evasion. Legitimate avoidance of tax is what tax advisers get paid for every day and, to a large extent, what anyone or any company would sensibly do. The builder is simply looking to prevent his turnover going over the VAT threshold amount.

All sounds very complicated though.

Thank you all for all your help, I appreciate it. We googled extensively and talked to the builder and it was all a little too ad hoc. Surely you can't have a contract and insurance with a company and also pay wages ( with no invoice) to himself and a mate as sub contractor

Sorry hit too soon, to him and his mate for all the work done...
On a lighter note.. Should I give the job to a builder who can't spell extension and who has cut and pasted the same phrase into all his references...
I feel miserable.

Is he good at building though and can you speak to some of his past clients and see his work?

Right, I did it this way through my builder last year. His Dad is a financial advisor and the VAT registration threshold is £81,000 and easy to avoid if a builder wants the money for any goods bought to be paid directly to the merchant.

So I had a quote, it detailed all the companies who would be supplying their goods or services. The build started, I paid the digger guy directly, and the chap who took away the soil. The builder then ordered the stuff needed for the foundations from the builder's merchant who he has been using for decades.

He gives me the details of the cost, I ring the merchants, pay them and later the same day the goods arrive. At the end of the week the builder invoices me for his service (labour) and I pay him directly into his bank account from mine.

I paid the concrete man, the window and doors people, plasterer, roofer etc directly to them and I get receipts for what I have paid.

I do find this very interesting the way people view tax avoidance and tax evasion, how many people have an ISA or see no problem with an ISA, a savings account with no TAX!

We did something similar with our builder too and paid for all if the trades and materials direct. This meant that we were paying vat on materials and on any of the trades who were vat registered (think the plumber was maybe), but the builder was able to keep his turnover below the vat threshold. We paid him directly into his bank account. He kept to the quote and all went very well. I wasn't bothered if I was paying for other people's materials, so long as the total paid was as per the quote, which it was