A trader we are using has suggested that we don't need to pay VAT as he doesn't earn enough to pay it. Is this normal? All of the other quotes we received said we would need to add VAT on top of the price quoted, so I'm concerned that this company is avoiding paying tax. Could we be implicated if we use this trader?

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    What country. Could you please add a country tag as rules vary from region to region. – Dheer Mar 28 '15 at 12:33

Assuming this to be in the UK, and I suspect the rules are similar elsewhere, this indeed may be true. There is a threshold beneath which a business does not have to register for VAT - currently a turnover of £81,000.

A non VAT registered business does not charge VAT but also cannot reclaim the VAT on their business expenses. For some businesses below the threshold it is worthwhile registering because the amount they can reclaim is significant.

However, there are also many small businesses that do a lot of cash only jobs so as to not put the money through the books and therefore avoid any tax liability. There are also many who will get the the customer to buy materials direct to avoid including these in their turnover. Like every type of tax rule there is a grey area between people trying to avoid paying more tax than is needed and dodgy deals to avoid paying their fair share of tax.

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    As an example, a window cleaner or a gardener working on his own with mostly private customers will want to avoid VAT because VAT increases the price to the private customer by 20% with almost no benefit to the tradesperson. And since their revenue is almost completely payment for their work, they usually stay below the £81,000 turnover. – gnasher729 Apr 26 '15 at 22:04

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