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I have a quote for an extension which is £95 000 +VAT. I have been told by a friend who is a project manager/builder, that I could avoid paying this VAT if I set up a joint account with the builder to which he has complete and full access. I am then the project manager but he pays for the labour and materials from this account thus avoiding it going through his books and therefore avoiding VAT. I appreciate it requires trust in the builder but is it legal? I have suggested it to my builder and he is not interested. Is he right to be concerned. My friend works in London and states that it is common practice there.

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    I tagged this united-kingdom based on the £ and the user name. If this isn't right, please comment or edit. – Vicky Aug 22 at 11:17
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    Seems like you're asking your builder to participate in VAT fraud without really offering him anything in return (since he's just a middle-man for the VAT anyway). I'm not implying that it would be in any sense legal if you did offer him a cut of your savings - just pointing out that there's no incentive for him to play along and take the risk for your benefit. – brhans Aug 22 at 12:22
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    There are no wasier ways to get people into trouble than stupid VAT fraud. – TomTom Aug 22 at 12:27
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You'll still pay VAT on the materials, but you won't pay VAT on the labour. However, this means that you will be hiring the labour yourself direct and you will be responsible for insuring them and managing their workload - including paying them if there's no work or down time due to weather, and if they're employees you'll have to provide PAYE, NI, pension and sick pay. You'll also be responsible for ordering all the materials, making sure they're on site on schedule, and you'll be covering the cost of loss or damage to materials during fixing.

You won't be able to order materials through your builder's accounts with suppliers as the invoices must be in your name, not the builder's. That means you won't get his trade terms and discount rates, or trade credit - you'll have to pay retail prices in advance.

You won't be covered by your builder's professional indemnity and public liability insurance for any work which doesn't pass through his books, so you'll have to take care of that yourself.

Basically, you'll be self-building the extension with contract labour. What will your builder be doing? And where will he be getting his profit from?

In theory you could save 20% VAT on labour. In practice this could end up costing you a lot more than 20% through increased costs and delays. Have you seen Grand Designs? It always costs more and takes longer when people who aren't builders try to run a project.

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