The builder approaching the VAT threshold
Sam is a sole trader builder. His taxable turnover for the 12 months to 31 May 2025 was £82,000. He has just signed a contract to build an extension for a local developer for £28,000, which he expects to complete over the next four months. He also expects ordinary repair work of about £4,000 per month. He has not registered for VAT. The VAT registration threshold is £90,000. He has already bought £9,000 of materials for the new contract and paid £1,200 for a used van two months ago. His customers are mostly private householders who cannot recover VAT. Sam asks whether he can wait until the end of the year, whether he can split the contract between himself and his wife, and whether he can recover VAT on the materials and van.
1. When must Sam register for VAT, and from what date would he be accountable?
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The backward look: his taxable turnover for the 12 months to 31 May 2025 was £82,000, below the £90,000 threshold, so no registration is due on that basis. The forward look: registration is required if at the end of any month he expects taxable turnover in the next 30 days alone to exceed £90,000. His new contract plus repairs is about £11,000 per month, so that test is not met. However, the rolling 12-month test will be met once his cumulative new turnover since 1 June 2025 exceeds £8,000. On £11,000 per month, that happens by the end of June 2025. He must notify HMRC within 30 days of the end of June, i.e. by 30 July 2025, and VAT is chargeable from 1 August 2025. He cannot wait until the end of the year.
2. Advise on splitting the contract with his wife and on recovering pre-registration VAT on the materials and van.
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Splitting the contract with his wife is not a tax-planning free-for-all. If she genuinely carries on a separate business, with her own customers, risk and equipment, her turnover is separate. If the split is artificial and only designed to avoid VAT, HMRC can aggregate the businesses. On pre-registration VAT, once registered he can recover VAT on goods bought within the previous four years if they are still held for the taxable business, and on services bought within the previous six months. The £9,000 of materials and the van (bought two months ago) should qualify if still used in the business. He needs valid VAT invoices.
3. What is the commercial effect of registration given that most customers are private householders, and would voluntary registration now help?
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Most customers are private householders who cannot recover VAT. If Sam adds 20% VAT to his prices, his services become 20% more expensive and he may lose work; if he absorbs the VAT, his margin falls. Registration also brings compliance costs. Voluntary registration before the threshold could allow recovery of input VAT on materials and the van, but it also means charging output VAT. It is most likely to be beneficial if he has significant zero-rated sales or large input VAT, which is not the case here. He should model the cash flow before deciding.