S MyBuilder Blog

Archive: July 2012

Roll of 50 pound notes

When the news came in that Treasury Minister David Gauke had been slating tradesmen who accept cash for work as well as the homeowners who pay them it was not a huge surprise to me. I had been preparing a blog post on the subject of why builders ask for cash in hand. I was a tradesman myself before I started this business and many of the thousands of builders who use our service often engage me on this topic. It came up again just the other day when we had some roofing work done (by one of the excellent roofers on MyBuilder). After coming back from the cash machine, my wife asked rhetorically: “Why do builders always want to be paid in cash?”. Rhetorically, because she already knew the answer. Or at least she thought she did.

I asked her if she knew why, and she said: “Of course! Taxes.”.

She was partly right. Taxes is the answer, but not the sort most people assume. An employed person thinks about income tax, which at somewhere between 20 and 45 percent, is the big and noticeable tax for most people. For tradesmen however, the bogeyman is VAT.

But VAT is only 20% you say… and don’t you just pass that on to your customers? Yes and yes. But still, the bogeyman is indeed VAT.

Firstly, for a jobbing builder or tradesman, effective tax rates can be lower than for an average employee. Tradesmen can either set up as self employed or as a Limited Company. Being self employed gives you expense deductions and as a Limited Company you can pay yourself in dividends at a lower rate. But it is far from unusual for a tradesman to have annual revenue in excess of £77,000, which is the threshold at which a business needs to be VAT registered.

This may sound like a lot, but you have to remember that £77,000 is revenue, not profit. If I supply and fit a new boiler, I might charge £2,500 and have to turn around and spend £2,000 to buy the boiler. Let’s say I manage to do about one of those a week – 50 a year. My revenue would be £125,000 for the year, but I’m really only making £25,000 from that £125,000. And then I have to pay for my van, diesel, tools etc. Imagine I have £10,000 of expenses for the year. I’m pulling in a paltry £15,000 of profit, but at least I only have to pay income tax on that £15,000, not the £125,000.

VAT however, is a very different story. With £125,000 in revenue, I’m well over the VAT threshold. This means that I have to charge my customers an extra 20% on every job. I’m walking through the door to quote on a job and I might as well be wearing a T-shirt that says ‘Don’t hire me, I’m 20% more expensive’. I can’t drop my prices to compensate for the VAT. Remember, I already only have £15,000 of profit per year. So the end result is that I lose business to heating engineers who are not VAT registered. What can I do? The only obvious thing I can do is to avoid VAT registration.

You can’t be VAT registered and avoid paying VAT. HMRC will hang, draw and quarter you. Getting paid in cash does not solve the problem when you’re VAT registered. You can’t insist that customers pay you in cash. Your quote has to include VAT because you don’t want to get stuck in a situation where you’ve omitted VAT and the customer doesn’t pay cash at the end.

So the key to survival is ducking under the VAT threshold by doing some cash in hand work. The reduction in income taxes is an added bonus, but this is not the prime reason for working cash in hand. Asking to be paid in cash becomes the modus operandi, because some customers will simply say no to paying an extra 20% on their bill just to be seen as morally correct by a Government minister.

Is this wrong? Yes. Is it tax dodging? Yes. Whose fault is is? HMRC and, at the end of the day, the Government who allow this to persist in these difficult economic times. VAT should be zero-rated on building work, just the same as it is on new builds. Tradesmen are well-known for ensuring that their income circulates back into the economy, whether this is by paying other tradesmen to do work for them, buying new cars or family holidays. Sure,  many tradesmen will have savings and even investments in property, but they will not be squirreling money away in tax havens.

The current VAT system is stopping money from circulating in the economy, is reducing the amount of building work being done and is, however inadvertently, making tax dodgers of otherwise honest workers. It is time for a change.

Picture by Images of Money.

Exactly eight years ago, on the 16th of July 2004, I had an intense dream. It felt so real that it jarred me awake at 3am. It was one of those dreams that didn’t feel like a dream at all… but that was the only explanation for why I found myself bolt upright in bed at 3:00 in the morning sitting next to my sleeping wife. It was the strangest dream I’ve ever had, mainly because it made so much sense. It was an idea… in fact a good idea (for once!). My heart was racing. I tried to wake my wife up to tell her the good news but was met with a barrage of profanities. Undeterred (if a little offended), I ran downstairs to write it all down.

Back in 2004, I was living in Bristol, working as a stonemason and trying to support my growing family. I had learned the trade informally while living in Southern France and working for a German builder and mason. I was relatively inexperienced, but my work was good. I specialised in building random rubble walls and arches. Before that, I was an artist… but that’s another story.

Life was hard. I had to adjust to living in a new country (my wife is English). I had to learn a new language (Bristolian). I had to adjust to a new way of working (self-employed). I was a new father and wasn’t getting much sleep.  We had another one on the way and the doctors told us the baby had a health problem that they didn’t fully understand. I was going from one subcontracting job to the next and not getting paid very well. We weren’t making ends meet and were begging and borrowing from our parents. One of the jobs I worked on was a 2 1/2 hour drive each way. The cost of diesel alone meant that my take home was little more than minimum wage. Another job I worked on saw the main contractor go bust and I was out two weeks of pay. I remember hearing that my wife rang up and gave them hell. They were lucky she didn’t show up in person.

So this idea that hit me like a bolt of lightning really did feel like it came from above. The idea was, of course, MyBuilder.com. In my dream, I had created the matchmaking process, trade profiles, the feedback mechanism… pretty much everything that is core to the site today. I can’t explain why I had the dream. It obviously related to what I was doing at the time, but I wasn’t interested in starting a web business and I’d never seen any sort of website like this before. If someone would have told me the day before that I was about to start a web business, I’d say: “Sorry, you got the wrong guy”. It was literally the last thing I would imagine that I’d do and I certainly didn’t know how to go about doing it.

So I can’t explain why I had that dream, but I can explain why I decided to pursue my business idea.

Firstly, it was special because it was my own idea. I’ve always valued original ideas and despise copying other people. There’s no way I would have pursued it if I had found a website like MyBuilder that already existed. The ironic thing is that my insistence to be original was a severe handicap when it came to convincing people to invest in my business. I thought that there was no point in doing something that has already been done, whereas investors wanted proof of concept in an existing business – basically, something I could copy. I was eventually able to dig up some other businesses that were similar enough, but while it placated investors, it demotivated me. I got over this by completely ignoring competitors and that’s still the way I operate today.

Secondly, I believed in the idea very deeply. I knew that we needed something like MyBuilder. Tradesmen need a better way to get work and homeowners need a better way to find the right tradesman. I very much felt that the industry was broken in the UK. What I loved about it was also the source of its problems: self-employment. Why tradesmen in the UK became self-employed is another story, but the end result is that tradesmen who just want to get on with their trade find themselves having to run businesses. And from the homeowner point of view, there are so many white van men to choose from, it seems impossible to tell one from the other. And after the job is done and they’ve been paid, the fear is that they’ll just disappear into the fog.

The reason that my idea made so much sense to me is that it promised to solve the biggest problems in the industry: matchmaking and accountability.

Tradesmen don’t know where the work is and homeowners don’t know where the right tradesmen are. Why was I driving down to Dorset when I knew there was plenty of work for me in Bristol (somewhere)? Why were homeowners complaining that they can’t find any available tradesmen when all the guys I knew, who were top notch, complained that they couldn’t find enough private work? This kind of matchmaking is exactly what the internet is great at.

The lack of trust between homeowners and tradesmen is a result of a lack of accountability, pure and simple. In the ‘old days’ we hired tradesmen and building firms in our local community because everyone knew everyone. You knew the local plumber, builder, carpenter and the gossiping community dealt with reputations. Life is dramatically different for many of us today. I live on a street of about 50 households and depressingly, I know only two of my neighbours by their first names. The feedback system, pioneered by eBay, brings the accountability of a community back into our lives. Being able to see what previous customers say, regardless of where they lived or which social circles they were in, was a powerful, exciting concept.

Whenever times were tough and I wanted to quit, somehow I would find myself back to that day in 2004, still getting excited about my dream and still convinced that this was the way forward. What stopped me from giving up, even in the face of many hopeless situations, was my conviction and the knowledge that if I didn’t make this happen, someone else would. I wasn’t about to let someone else take my idea and run with it.

We kept hearing a lot of fuss about something called Fifty Shades of Grey. Apparently, women were reading it on the train to work and housewives were getting excited about it. We could only assume that it was a book of paint swatches for a new range of paints aimed at women who didn’t like bright colours very much. But we couldn’t find the colour swatches at our local DIY store. Anyway, we went ahead and made this short film about this new phenomenon that all the newspapers and TV shows were talking about anyway. We hope you enjoy our interpretation of the story of 50 Shades of Grey.

If you have come here from a link to the video then do look around our site. We believe we are the better way to find a builder. It is easy to post a job and you control which tradesmen contact you.

Conversion and renovation work may become more plentiful for MyBuilder users in the UK countryside, following the announcement of a consultation on re-defining permitted development when it comes to former agricultural buildings. The Minister of State for Decentralisation and Cities, Greg Clark, announced the consultation this week, which would make it easier for farmers and developers to convert barns and outbuildings into farm shops, retail outlets, gyms, leisure facilities or entertainment venues.

Naturally, the proposals are controversial among those who live in the countryside. Some are keen to see the regeneration and new jobs that the scheme may bring, but others are worried that the move could lead to unchecked development and ruin the character of our green, open spaces. What do you think? Should we allow development without planning permission in such instances? Or is the countryside too special to be subject to unregulated conversions of this kind?

 

Photo by RONg

Here is the Friday lunchtime song to take you to the weekend. This one is for the plumbers on MyBuilder!


Whatever you do, don’t try this on a site you are working on! This is a demonstration from crane (and fridge) manufacturer Liebherr, which is equal parts astounding and terrifying. First a crane lifts a crane, then a crane lifts the crane lifting the crane and then… Well you get the idea. The video runs at seven minutes, but those of you who are not extreme crane geeks may wish to skip forward to the action.

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