Let’s face it, no one likes paying taxes. We begrudgingly accept it as a necessary evil. Because of this, over the years there has been a stereotype that builders prefer payment in cash, and that paying builder in cash means they don’t have to pay the tax. While there may be a grain of truth in it, it doesn’t form the whole picture.
Some dodge paying their VAT by requesting payment in cash. However, evading VAT is a form of tax evasion and so is illegal.
On the other hand, there are lots of legitimate reasons for a builder or tradesperson to not provide a VAT receipt or accept payment in cash.
There’s some grey areas with this, so let us sort out fact from fiction for you.
Is It Illegal to Pay in Cash?
The short answer to this is no. There’s nothing illegal in paying builder in cash, for them to request cash or offer a discount for paying cash. But, it doesn’t remove the builder or tradesperson’s obligation to declare their earnings and services performed to HMRC.
There is a catch. The obligation always falls upon the shoulders of that tradesperson. If they are dodging their taxes however, then HMRC could potentially investigate you as an accessory (to see if you knew anything about it).
Any builder, tradesperson or business who sells goods or provides a service can decide whether or not they want to register with HMRC for VAT purposes in the beginning. But, when a business’ turnover exceeds £85,000 (correct at the time of writing) the business must register with HMRC for VAT.
Therefore, a lot of independent tradespeople don’t meet this standard and are not registered, meaning they may not be able to provide a VAT receipt. This doesn’t mean you shouldn’t use them. On the contrary the quality of their work may be amazing, and their prices may be lower because of the fact they are not yet obliged to pay VAT.
It’s always a good practice to request a receipt for any and all services received, and the amount paid, to ensure that a clear paper trail is available, VAT or not. This can help protect you should there be any issues down the line.
There Are Some Exemptions
We’ve covered this before (click here) but here’s a summary.
Even if the company or trader is VAT registered there are exceptions to certain pieces of building work. A common example is that new builds are classed as zero-rated, so no VAT would be charged.
Adaptations for disabled people can also be exempt from VAT if they qualify, so check these out first. This applies to things such as ramps, widening doorways and bathroom works.
Sometimes VAT is not eliminated but simply reduced. Some building works and services can use a VAT rate of 5%. It can apply to the following situations:
- If the property has been empty for 2 years or more.
- If you are installing qualifying energy-saving products.
- If you are installing certain grant-funded heating and security equipment for people over 60 or on benefits.
- If you are converting a building into a house or flats or from one residential use to another.
Word of warning though, it’s all or nothing. The 5% only applies if all the work fits into the above categories, not just part of it.
For example, if you have an extension built but part of it is a converted bathroom and ramp to the new door, this will all be charged the full rate of VAT, which is 20%, because only part of it is a qualifying category.
The full list of exemptions and reductions can be found on HMRC’s website.
What Happens If the Work’s Not up to Par?
You’ve had the work done but somethings not right, or it’s not up to your standards, what happens now? Not getting a receipt or any evidence of any payments made in cash can leave you in a very vulnerable and tricky situation.
Although there are no legal consequences for paying builder in cash as it’s a perfectly legitimate transaction, with no proof of the services or their cost, any poor workmanship (or if the business goes bust mid-job) means your options become severely limited.
Put simply, No Receipt = No Proof. No Proof = Limited Options.
Trading standards may not be able to help you if there’s no clear paper trail and the tradesperson’s liability insurance may refuse to cover a claim where there is no receipt or evidence.
There is a limited amount of protection from the Consumer Rights Act of 2015. There is some implied terms of service for businesses to follow. For example, any services supplied must be carried out with reasonable care and skill and in compliance with reasonable timescales and fixed costs.
But, there is no need to have a written contract because the terms are implied regardless of whether they are set out in writing or agreed verbally.
In any case, it’s always best practice to have something in writing that you can use as proof. It will help protect you should the worst happen.
Invoices containing VAT should always clearly state this and it should be shown separately on the invoice, so you know the amount exclusive and inclusive of VAT.
The invoice should also show the VAT registration number for the company. As above if there are cases when it is exempt or charged at a lower rate this should also be indicated. For peace of mind you can always check the validity of the number here: http://ec.europa.eu/taxation_customs/vies/.
It doesn’t matter if you pay in cash or if you pay another way but having that paper trail is what’s important. For more information about our services and prices, speak with us today. Click for contact >