House renovation reduced rate VAT query

Hi. We are renovating a cottage that we have proof has been unoccupied for over 2 years. Our builder was happy to take on the job and charge us the 5% rate, and indeed his invoices state 5% on labour and materials. However, we recently discovered that for one item the amount he invoiced us was the gross amount that item cost from the supplier at 20% VAT. In other words, he has divided that amount by 1.05 and stated that as the net cost on his invoice to us. We now suspect he has been doing this throughout the build in which case we are potentially missing out on tens of thousands of pounds. Is he doing anything illegal, and if not is there anything we can do to recover the money? As things stand we suspect he is the one benefiting from the 5% rate, not us!

Hi. The builder is doing nothing illegal. The only requirement from the builder is that he charges 5% VAT on the work done in relation to the empty property. HMRC can't dictate the amount which the builder charges for his services/materials and so if he chooses to pass on the gross value which he has paid for the materials then he is within his right to do this. It does go against the spiirit of the relief for empty properties however but this is not illegal. Thank you .

Hi. Thank you for the reply. We did suspect as much. Can I just ask two follow up questions: 1. Our builder has been claiming that he is buying his materials at 5% and that is why there is no rebate for him to claim and pass back to us. Our understanding now is that this isn't possible. Is there any mechanism by which he could obtain his materials by only paying 5% at point of purchase? 2. He has also mentioned several times that he is reluctant to claim VAT back from HMRC because 'they never pay it back'. However, as a VAT registered business he would surely be required to do this quarterly as a matter of standard accounting process, wouldn't he? Thanks again for your help!

Hi BlueFuzz,
It is not possible for a builder to buy over the counter goods at 5% VAT.
The 5% rate will only ever arise where the supplier is supplying and installing goods and so a shop selling materials are obviously not doing that.
When a VAT registered business completes their VAT return they will itemise all of the VAT they have charged and all of the VAT they have incurred. If this results in a repayment to the business then HMRC will pay this to the business within 30 days and generally much sooner than this.
Thank you.