VAT Rate on renovations

ARGINITE

Looking at getting some renovations done and the builder has given me a cost of €40000 ex VAT, he wants payment split over two payments (half at the start and half at the end).

The quote that he has sent me has the first payment at 21% VAT as the materials consist of 2/3 of that first payment. Is this correct or do the materials need to be 2/3 of the total quote (€40000) for him to be able to charge me 21% VAT?

To be clear first payment of €20000 at 21% VAT and then a second payment at 13.5% VAT.

DOCARCH

Sounds a bit dodgy to me?

VAT on construction is 13.5%.

Builder buys materials with VAT rate of 21%, claims the VAT back, uses the materials, then charges client and pays VAT at 13.5%.

ARGINITE

What's confusing me is how the 2/3 VAT rule is being applied to the first payment as he intend to buy all the necessary materials then.

the_pen_turner

DOCARCH wrote: »

Sounds a bit dodgy to me?

VAT on construction is 13.5%.

Builder buys materials with VAT rate of 21%, claims the VAT back, uses the materials, then charges client and pays VAT at 13.5%.

2 thirds rules surely puts the whole thing at the higher rate.
Only dodgy thing is that he is twisting things to give op a lower vat bill on the second half

Panjandrums

I wouldn't be paying 20k at the start. It's his responsibility to arrange finance if he's having cashflow problems.

The most I would do is a weekly payment based in work completed.

the_pen_turner

Panjandrums wrote: »

I wouldn't be paying 20k at the start. It's his responsibility to arrange finance if he's having cashflow problems.

The most I would do is a weekly payment based in work completed.

Why should the contractor have to finance the your job. The contractor is taking all the risk

muffler

the_pen_turner wrote: »

Why should the contractor have to finance the your job. The contractor is taking all the risk

So it's Ok for the client to fork out 20 grand before there's a shred of work done?

the_pen_turner

muffler wrote: »

So it's Ok for the client to fork out 20 grand before there's a shred of work done?

Yes but with a contract. Why would you expect the contractor to take all the risk.
It's a deposit .

muffler

the_pen_turner wrote: »

Why would you expect the contractor to take all the risk.

We could go round in circles all day at this rate. You've asked this before and I pointed out the obvious.

the_pen_turner wrote: »

It's a deposit .

Thats one word for it. Asking for 50% of the contract amount up front isnt a deposit. Its a safety net for the contractor which the client has to pay for. In other words 50% up front is just taking the piss IMO.

Over the years I have advised all my clients to pay nothing up front but to work out a schedule of payments that would begin when there was a certain level of works completed with further / continuing payments made to reflect the various completed stages. That reduced the risk to both parties.

There are various forms of contracts with some suiting the builder and others suiting the client. Personally I prefer to see a contract that suits both parties.

the_pen_turner

muffler wrote: »

We could go round in circles all day at this rate. You've asked this before and I pointed out the obvious.

Thats one word for it. Asking for 50% of the contract amount up front isnt a deposit. Its a safety net for the contractor which the client has to pay for. In other words 50% up front is just taking the piss IMO.

Over the years I have advised all my clients to pay nothing up front but to work out a schedule of payments that would begin when there was a certain level of works completed with further / continuing payments made to reflect the various completed stages. That reduced the risk to both parties.

There are various forms of contracts with some suiting the builder and others suiting the client. Personally I prefer to see a contract that suits both parties.

but you havnt actually answered the question.

i think 50% is to high as well but the poster said pay nothing. thats not fair on the contracter.
from the contracters point of view you want to get the materials paid as soon as posible to reduce the risk of being ripped off.

DOCARCH

the_pen_turner wrote: »

2 thirds rules surely puts the whole thing at the higher rate.

I am aware of the 2/3rds rule but have never seen it applying to construction.

Normal VAT rate for construction is 13.5% (labour and materials).

ismat

Unless the value of materials is over 26,400 net of vat, then 13.5% could be applied to the entire contract

Bonzo Delaney

Contractor charges Client vat at13.5% end of.
Regardless of what end price is aggreed.
What ever fiddle is been done with materials/labour is the contractor's problem.
The clients only concern is the bottom line. Not their problem.

On the deposit probably best to work out a weekly stage payment divided by the amount of weeks involved.
Less 5% paid when job is completed.
Works for me any way.
Most reputable builders would have at least 1 months credit with their suppliers.

the_pen_turner

DOCARCH wrote: »

I am aware of the 2/3rds rule but have never seen it applying to construction.

Normal VAT rate for construction is 13.5% (labour and materials).

My accountant tells me to apply it. Most of my jobs would be 2 to 5000 usually so it would be a lot either way in diference

the_pen_turner

Bonzo Delaney wrote: »

Contractor charges Client vat at13.5% end of.
Regardless of what end price is aggreed.
What ever fiddle is been done with materials/labour is the contractor's problem.
The clients only concern is the bottom line. Not their problem.

On the deposit probably best to work out a weekly stage payment divided by the amount of weeks involved.
Less 5% paid when job is completed.
Works for me any way.
Most reputable builders would have at least 1 months credit with their suppliers.

That's not what the law says.

Talking to some local guys on site and quiet a few are refusing to supply significant value of materials or only doing so once they are paid for. Far too many have been burnt

the_pen_turner

ismat wrote: »

Unless the value of materials is over 26,400 net of vat, then 13.5% could be applied to the entire contract

Have you a link to that first I have heard of a threshold for that

Bonzo Delaney

Thats where buyer beware comes in applies to both sides. Do the home work.
Depending on the nature of the job, as a main contractor. you'd build up a healthy sum in the first couple of weeks to be able to pull the plug once a rat smell was discovered.
Agree subbies would be different as they'd supply most of their own material but again only take work from builders that pay.

ARGINITE

Prior to starting this thread I did some research and my conclusion was that the 2/3 rule wouldn't apply unless materials is 2/3 of the total cost of the job (total cost €40000). In my case the total cost of materials would have to be above €26666.66 for me to be charged 21% VAT on the job.

I came to this conclusion by assuming that the builder is offering a service and that the rules set out by Revenue HERE would then apply.

I was looking for someone to confirm this but looks like I have stirred up a hornet nest which wasn't my intention.

DOCARCH

ARGINITE wrote: »

I was looking for someone to confirm this but looks like I have stirred up a hornet nest which wasn't my intention.

The simple answer is the applicable VAT rate to your entire job is 13.5%.

scwazrh

ARGINITE wrote: »

Prior to starting this thread I did some research and my conclusion was that the 2/3 rule wouldn't apply unless materials is 2/3 of the total cost of the job (total cost €40000). In my case the total cost of materials would have to be above €26666.66 for me to be charged 21% VAT on the job.

This is correct and I would add you should run a mile from any builder looking for 50% upfront.

sydthebeat

the builder cant split the vat rate
its the one job, its the one contract, its the one vat rate.
either the rate of the goods applies to the entire project, or the rate of the service applies to the entire project.

ismat

the_pen_turner wrote: »

Have you a link to that first I have heard of a threshold for that

I was referring to a job with a total of 40,000 to stay within the 2/3 rule

the_pen_turner

ismat wrote: »

I was referring to a job with a total of 40,000 to stay within the 2/3 rule

That makes more sense.

ted1

the_pen_turner wrote: »

Why should the contractor have to finance the your job. The contractor is taking all the risk

Because it’s a cost of doing business.