Q:
I have had some building work done and the builder has issued invoices which show a VAT number. Before he started he said he was de-registering for vat and we wouldn’t have to pay it. Some invoices we have paid in cash and there is no vat on the invoices. Some invoices show vat charged to us. Can I claim this back from him as he shouldn’t have charged it? Will he have to pay it to the VAT man anyway, in which case will we ever get it back? I assume he is breaking the law charging it so how could he give it to the VAT man without raising suspicion?
Help!
A:
Do you know exactly when he de-registered? It’s possible that he de-registered from VAT part way during your building work, therefore he’s charged VAT on the payments up to that point and then stopped charging VAT once he de-registered. He might also just have charged VAT in error after de-registering.
But if he has shown any amount as VAT on any invoices – whether or not he was registered at the time – the VAT belongs to HMRC unless he has charged it in error and correctly refunds it to you with a credit note.
It’s always a bit of a sticky area this one – we’ve all heard the “cash no VAT” line. And I know a lot of people actually ask to pay in cash to avoid paying VAT.
If you’ve paid him in cash while he was registered (or liable to be registered due to undeclared sales), he is still liable to pay VAT to HMRC, even if he didn’t charge it. Also HMRC could prosecute him for fraud or at least charge him significant penalties if he under-declared his VAT.
I appreciate that you may not want to challenge him directly about this issue, but you could ask him if he’s charged VAT in error as you thought he was de-registering. If this is the case, then he may be willing to refund the VAT that he has charged. If you signed a contract with him for the building work, there may be something in the contract confirming whether or not he is registered for VAT.
If he refuses to refund the VAT or you want to check that he has at least paid the VAT to HMRC, you can report the facts to HMRC who will look into the matter. There is some information here http://www.hmrc.gov.uk/vat/sectors/consumers/basics.htm on the HMRC website page for consumers that you may find helpful.
You’ll also see at the bottom of the consumers’ page a hotline number that you can use to report suspected fraud. You don’t have to give your name or any personal details and I understand that HMRC get a lot of queries about VAT charged by unregistered contractors or for cash payments via the hotline.
Marie