Ahh, the smell of tax in the morning!
The VAT rules are pretty simple (well, not really). If you run a business and you have an income over £82,000 in a twelve month period, you need to register for VAT. You get a VAT number and you have to show your price net of VAT and the VAT on your invoices. It’s a lot of money – if you pay £50,000 on your project, you will need to pay £10,000 of VAT and for most of my customers, that’s a lot of money.
What if your builder says he is not VAT registered? There are some genuine businesses that don’t need to charge VAT because they just don’t do that much work. A decorator, gardener or a even a jobbing electrician might be under the threshold. But if you are looking at a project over 20k and it’s going to take less than 3 months on site, you need to ask yourself why your builder is not VAT registered. He could work for someone else part of the year, or he might be starting up under a new business name. Or there might be an “arrangement”. This could be two some traders splitting the jobs, or asking you to pay the materials. If you don’t see a VAT number, ask. And make sure you speak to a previous customer and see if they are happy. The construction trade goes up and down, at the moment everyone is busy so you should see less unregistered traders.
It’s also worth remembering that builders who don’t charge VAT can’t claim it back on their materials. So unregistered traders should be charging a bit more for the bricks and timber – if this isn’t reflected in the prices you get back they might not be charging enough to do the job properly.