Reply to: Reduced rate VAT on renovation via Ltd?

[Jessica@WhiteFieldTax]

I know a handful. Oddly enough their turnover is just below the VAT threshold every year.
They do materials as disbursements (not that they know that’s what it’s called) so their business is time only.

Edit: basically they’ll lose business if they have to charge 20% more than the local competition. I do know a builder who is both self employed (for non VAT jobs) and runs a LTD.

Yeah, thats where the cliff edge effect of vat leads to all sorts of problems - some businesses feel its a commercial decision they need to take to structure in that way. Its a lot of work to get it right and watertight.

[Lance]

Reduced rate VAT on renovation via Ltd?

Not one that does any significantly sized five figure sum building works I wouldn't have thought.

I know a handful. Oddly enough their turnover is just below the VAT threshold every year.
They do materials as disbursements (not that they know that’s what it’s called) so their business is time only.

Edit: basically they’ll lose business if they have to charge 20% more than the local competition. I do know a builder who is both self employed (for non VAT jobs) and runs a LTD.

[Rafd]

Thanks for the good info Jessica, I hadn't considered paying for the contractor via my Ltd. Although by the sounds of it it could be more work than is worth it.

[Jessica@WhiteFieldTax]

I've bought a house which is in need of renovation and qualifies for the reduced 5% VAT rate on works/materials due to being empty for over 2 years. I have read the relevant HMRC pages and it only seems to work if hiring a VAT registered building company to do the work. The building contractor bills you the reduced rate on work and materials then I guess claims back the materials VAT from HMRC.

However, the builder I was planning on using is non VAT registered so it would seem I would lose out on the VAT reduction on materials. I am wondering if there is an alternative way to buy materials via my own Ltd. My Ltd becomes the supplier but does not actually make or lose any money in the process. Does that sound in any way viable or am I clutching at straws? Are there issues with running multiple types of business through the same company?

Thanks!

It can work, and a captive development company isn't exactly novel or unusual in the development sector.

Where your plan falls down, I think, is the supply at 5% must be on a composite supply of construction services, not just materials.

So YourCo would need to contract the builder in, and then charge you 5% on both labour and materials. So you save 15% on materials, incur 5% on labour. YourCo can reclaim vat at normal rate on the materials bought.

You also would probably have to look at CIS administration if YourCo is moving into building trade.

YourCO would need suitable Public Liability.

All in all the hasstle factor is considerable for a one off, but its doable. Seek your accountants advice to discuss further.

[TheCyclingProgrammer]

Or a builder who does a lot of cash in hand jobs. Like most builders who are sole traders.

Not one that does any significantly sized five figure sum building works I wouldn't have thought.

[Scruff]

The house is personal and nothing to do with my Ltd. I am just asking if it is legitimate for my Ltd to purchase materials with the cost being immediately paid back to my Ltd by me as a means to benefit from the reduced VAT rate.

Edit: so yes I guess this could be considered directors loan. Unless there is a legitimate way for my Ltd to buy and sell goods which I suppose is the core of what I'm getting at.

If it's put through YourCo. against your Director's Loan Account, then the VAT isn't claimable. It's also not Legit to attempt to do so, so your Accountant will (should) counsel you against it.

IANYA

[Lance]

Is the builder reputable? Have you seen any of their work? The reason I ask is because I’d expect most decent builders in high demand to be over the VAT threshold. It would only take two or three extension jobs a year to exceed the threshold. Unless they are just a single sole trader who only does smaller jobs it raises a few eyebrows.

Or a builder who does a lot of cash in hand jobs. Like most builders who are sole traders.

[northernladuk]

The house is personal and nothing to do with my Ltd. .

IMO keep it that way.

[TheCyclingProgrammer]

Is the builder reputable? Have you seen any of their work? The reason I ask is because I’d expect most decent builders in high demand to be over the VAT threshold. It would only take two or three extension jobs a year to exceed the threshold. Unless they are just a single sole trader who only does smaller jobs it raises a few eyebrows.

[WTFH]

The house is personal and nothing to do with my Ltd. I am just asking if it is legitimate for my Ltd to purchase materials with the cost being immediately paid back to my Ltd by me as a means to benefit from the reduced VAT rate.

Given that HMRC are a bit iffy when it comes to the 5% rule amongst other things, if they picked up on you buying materials through your company then paying it back out of your personal account, they might not be too happy.

[Rafd]

The house is personal and nothing to do with my Ltd. I am just asking if it is legitimate for my Ltd to purchase materials with the cost being immediately paid back to my Ltd by me as a means to benefit from the reduced VAT rate.

Edit: so yes I guess this could be considered directors loan. Unless there is a legitimate way for my Ltd to buy and sell goods which I suppose is the core of what I'm getting at.

[ladymuck]

The renovation is via the LTD but you said you bought the house... I assume this is you as a business and not you as an individual?

^^ this

If you personally own the house but YourCo is paying for the renovation, are you intending for YourCo to have a stake in the property or are you taking a director's loan? As you're talking £40k you need to look into the rules around the DLA and how to keep the loan compliant.

[northernladuk]

The renovation is via the LTD but you said you bought the house... I assume this is you as a business and not you as an individual?

[Rafd]

No I'm not looking for permission or support, I'm just trying to get some advice on whether a possible option is viable or not. Ideally looking for advice backed up with facts rather than opinions.

[Maslins]

If you've already decided that's how you're going to do it, then all you're looking for is permission/support from us, not advice.

This.

FWIW my view is also "don't do it".