VAT or no VAT?

[littlespark]

Hello. Long time no see. I’ve been up to my eyeballs in treadmills, weights and a great number of super fit individuals who are making me feel totally inadequate as a specimen of human being…. Anyway…

The customer has baulked at my invoice due to the cost of materials… and is suggesting that he pay CEF directly as he is VAT registered and I am not.

Most of my customers since I started SE have been domestic, and any commercial work I’ve done, no one has ever asked to pay like that.
I’ve never had a problem in 8 years being self employed, and the accountant said when I started it wouldn’t be worth me registering for VAT at the beginning… maybe it’s time to change.

I’m just wondering if it would be better to be vat registered myself, and the pros and cons either way.


As an example invoice, say I have £40 an hour for time, plus basically retail price for materials (with a little mark up) Total at the bottom, and a note to say I’m not VAT registered.

Being registered, I would have to state my VAT number… would I still charge £40, or would I charge £33 and add the 20% at the bottom to bring it up to 40?


I’m going to ask the accountant as well on Monday…. But I thought I’d get feedback from youse first.

 

[Bob Geldoff1234]

The vat you give to the tax man so if you reduce your money to £33 plus vat then your taking a pay cut.
Your real price is £40 plus vat.This then makes you dearer for domestic customers and your work will suffer.
If your only doing commercial then maybe its worth it but for domestic it will make you dearer.
My accountant has told me to try to stay out of vat unless your going to earning WELL over the threshold.
If your below the threshold and do mainly domestic then stay well away is my advice.

 

[littlespark]

Great advice.

Customer is just going to have to stick it.


The materials in question is a drum of large SWA, so a few hundred just on the VAT…
I’m having to find a good price, deal with the wholesaler, organise delivery’s,…. I need a markup too.


Can a VAT registered company claim VAT back on materials sourced from a non VAT source…. Ie me.

 

[SparkySy]

I was not vat registered for the first 5 years.
I went Ltd last May and vat.
Yes it does make you dearer to the domestic market, but that is mainly due to it being on the invoice, not included in the price of materials.
To be fair all my domestic customers, which is not many were happy to pay vat and still continue to use my services.
For the bulk of my business, it's actually a massive help, as the customers are vat registered too.
The only thing about it is that you end up with more paperwork.
I have now got Xero software to do my day to day accounting, and an excellent accountant for the vat and CIS returns.
This has obviously added to my costs too so when I did change I upped my hourly rate and added vat.
So far the last 9 months have been the busiest I have been since around 2007.
I am so glad I did it, so far it has all been worthwhile.

My biggest hope is that Labour don't f#@k it up for every small business as they seem to be doing at the moment.
The only thing they have successfully done since being elected is to p/$$ off many different sectors of society, including pensioners, farmers and businesses to name a few!

 

[Simon47]

If you allow the customer to buy the materials - they can reclaim the VAT.
If you buy them, you will have to pay the VAT - but no, your customer cannot reclaim it.

As to registering or not, consider a number of factors - principally to mix of registered/not registered customers, and mix of labour and materials.
If you register: you do not change your labour rate to registered customers, but make materials cheaper to them; for non-registered customers you make your labour more expensive (+VAT), but do not change materials.

 

[buzzlightyear]

My biggest hope is that Labour don't f#@k it up for every small business as they seem to be doing at the moment.
The only thing they have successfully done since being elected is to p/$$ off many different sectors of society, including pensioners, farmers and businesses to name a few!

Now dont get me started about the of muppets running Downing st. because with they finish it will be RUNDOWN.
I'm glad that not VAT REGISTERED ,boy if you F555K that up.
they will send a posse to run out of town .

 

[littlespark]

Glad to have the old Buzz back….. Recent posts have been somewhat intelligible.
Back to form now.

 

[baldelectrician]

I often get the client to buy the materials on larger jobs.

I did a car charger last year that was £2300 in materials (long length of 16mm EV ultra cable) and had the client buy the stuff

In the end the labour and the little materials I supplied was about £550

I have did this for the last year more often and I my turnover dropped by £20k with a similar amount of labour

I just put the client in contact with the wholesaler (wo are told to give my client a price that is better then a walk off the street price), the wholesaler delivers or I pick up.

The invoice is in the clients name and it does not go near my account

My work is about 98% domestic.

I also add 25% to my materials and tell the client that, they have the option to get from the wholesaler direct or get through me.

 

[SparkySy]

I often get the client to buy the materials on larger jobs.

I did a car charger last year that was £2300 in materials (long length of 16mm EV ultra cable) and had the client buy the stuff

In the end the labour and the little materials I supplied was about £550

I have did this for the last year more often and I my turnover dropped by £20k with a similar amount of labour

I just put the client in contact with the wholesaler (wo are told to give my client a price that is better then a walk off the street price), the wholesaler delivers or I pick up.

The invoice is in the clients name and it does not go near my account

My work is about 98% domestic.

I also add 25% to my materials and tell the client that, they have the option to get from the wholesaler direct or get through me.

I will do much the same, a lot of my customers have accounts with a wholesaler already, and are happy to submit a list of materials I have drawn up for them.

I will also put 25-30% on materials if I buy them to cover faulty or failed equipment replacement for 12months.
If they buy materials I will charge for repairs/replacement and time on site.

My work is around 70% agricultural 25% commercial and only 5% domestic.

Its a strange world, for many years I did mainly domestic work, but upon meeting a very nice farmer about 20 years ago my work has totally shifted.
I am glad in a way as I never was very enthusiastic about domestic work!
I like wrestling big cables and glands and having plant on site, even when it's cold and wet id still rather be outside!

 

[brianmoooore]

I like wrestling big cables and glands and having plant on site, even when it's cold and wet id still rather be outside!

Even when you're knee deep in cow s.h.i.t.e?

 

[SparkySy]

Even when you're knee deep in cow s.h.i.t.e?

That doesn't bother me at all, I was working in a calf shed the other day and was at the bottom step of a ladder deep in it, just don't fall over
I spend a lot of time washing down kit especially ladders, and waterproof over trousers!
I tether everything cos if you drop your kit it's going to be full of s#1t.

 

[buzzlightyear]

I remember when is was a kid, my old man would say take the barrow up the field and bring back cow pat, what to eat, no for the vegetables, me I'm not eating the s££t.

 

[littlespark]

I’ve been mulling over my thoughts…..

If a business is vat registered…. Do they not pay the bills inc. vat, then claim vat back, with their accountant knowing what can and can’t be reclaimed?

So he pays me my bill either way.
He is end user…. It’s not like he’s selling it on again to someone else.

The vat has to be added somewhere on the supply chain…. So he either pays me to cover me paying it…. Or he gets a vat bill at end of year?


Although maths is my strong point….. tax and vat are not.

 

[buzzlightyear]

If a business is vat registered…. Do they not pay the bills inc. vat, then claim vat back, with their accountant knowing what can and can’t be reclaimed?

So he pays me my bill either way.
He is end user…. It’s not like he’s selling it on again to someone else.

The vat has to be added somewhere on the supply chain…. So he either pays me to cover me paying it…. Or he gets a vat bill at end of year?


Although maths is my strong point….. tax and vat are not.

if the person is vat registered and he asks you give me the bill and i will claim the tax the bill is paid you not entitled to the bill .
he will claim in expenses what he has paid .so if vat registered you
charge them and they claim it back.

 

[buzzlightyear]

When you can claim back VAT​

If you had to charge VAT on items you paid for because they were supplied to you and not to your client, you can claim back any VAT you paid on them. It makes no difference whether or not you passed these costs on to your customers as recharges. You’ll need a VAT invoice for each item you claim the VAT back on.

Your customer will also be able to claim back the VAT you charged them if they’re VAT-registered.

 

[buzzlightyear]

https://www.bing.com/ck/a?!&&p=6dc78d6c07e367c91d8e186ec6b4d9e0faf0e68edac104358d3696ea8103fa1fJmltdHM9MTczOTA1OTIwMA&ptn=3&ver=2&hsh=4&fclid=0798af7c-fad8-64cd-0b4d-bd0cfbe865af&psq=claiming+vat+if+not+vat+registered&u=a1aHR0cHM6Ly93d3cuY3J1bmNoLmNvLnVrL2tub3dsZWRnZS9hcnRpY2xlL2Nhbi1pLWNsYWltLXZhdC1iYWNrLWlmLWktYW0tbm90LXZhdC1yZWdpc3RlcmVk&ntb=1

 

[UNG]

If you are trading below the VAT threshold it has to be a considered decision to register for VAT
Things to consider are what VAT accounting method you will use, cash accounting, accrual accounting and flat rate scheme are a few methods and each has it's benefits and negatives
Then there are the likely visits from the VAT inspector every 5 years or so which usually takes up half to a full day
If you use an accountant your accountancy costs will inevitably increase alternatively doing it yourself you will have to negotiate the "making tax digital" system to file your quarterly returns

Take your time and get some advice to make sure it is right for you and not just a select few of your customers

 

[buzzlightyear]

You must register if your taxable turnover in the last 12 months was more than the VAT registration threshold of £90,000 or if you expect your turnover to go over £90,000.plus the more you earn, thieves will have it off you. plus more you earn the more tax you pay.
if you are self employed you must think very carefully.

 

[littlespark]

Ok. I’m not making 90k that’s for sure.

His argument is he wants to buy the materials that I’ve already had delivered…. At my CEF price on my CEF account.
I’m going to invoice him for last weeks time anyway… and add any materials on site and installed. ( there’s another unopened drum of cable)

The govt will take the vat either way…. But would they actually take it twice?
There must be some procedure in place. I can’t be the first non vat registered selling to a vat registered?

I’ll email my accountant tonight and see what they advise.

 

[buzzlightyear]

The govt will take the vat either way…. But would they actually take it twice?

Read post 16.

 

[buzzlightyear]

You are not VAT registered, so let him pay for the invoice plus vat, he claims
You charge him time, but not the materials. Hay presto.

 

[Simon47]

The vat has to be added somewhere on the supply chain.

The govt will take the vat either way…. But would they actually take it twice?

No, it won't get charged twice - at least not directly *.

As a non registered trader :

You buy the goods on which VAT is charged. You cannot reclaim this VAT so the cost to you is the VAT-inclusive price.
You do not add VAT on your labour.
So the cost to your client is "goods+VAT + labour". Because you are not registered, the VAT element is not recoverable anywhere.
The end result is that the materials cost your client 20% more *.

By allowing the client to buy the materials, they can reclaim the VAT, so they avoid that 20% markup.

If you were registered, then you reclaim the VAT on the materials so the cost to you is the ex-VAT price. When you invoice the client you charge VAT on the whole amount, which your client can reclaim. So nett, no VAT has been paid - it's just gone round the loop a couple of times !

* arguably, if you have paid VAT on materials which the client can't reclaim, there is double charging in that your client will charge VAT on the sales who's profits pay for those materials that VAT couldn't be reclaimed on.


For completeness, for a non-registered client is :

If you are not registered, the client pays VAT on the materials whether you buy them or the client does. There’s no VAT on your labour.

If you are registered, then you reclaim the VAT on materials, but charge VAT on the whole bill. So your labour costs the client 20% extra.


So, for non-registered clients (almost all domestic clients), it's better to be non-registered as your labour won't have a non-recoverable 20% markup.

For registered clients, there's a benefit to be registered OR let them buy the materials. Otherwise there's a non-recoverable 20% markup on materials.

 

[pirate]

Much good advice here. It all depends on your turnover, but if you can avoid VAT registration, do so. The VAT man is the enemy. Especially if you are a sole trader. You do not want the VAT man at your door under any circumstances!
Sorry...that's my doorbell!
Sh*t...

 

[tony9i9i9i]

Great advice.

Customer is just going to have to stick it.


The materials in question is a drum of large SWA, so a few hundred just on the VAT…
I’m having to find a good price, deal with the wholesaler, organise delivery’s,…. I need a markup too.


Can a VAT registered company claim VAT back on materials sourced from a non VAT source…. Ie me.

You could let him buy the materials and only charge labour, which keeps your turnover lower and if you ever have to go back due to his faulty materials, you can invoice your time.

 

[ferg]

My accountant told me to avoid it like the plague.
Apparently in order for it to be worthwhile I would need to be going a long way beyond it.
Otherwise get customers to buy expensive materials and forgo the mark up.
I have had the same advice from former, retired, VAT inspectors.

 

[WallaceP]

Being VAT registered isn't that bad, especially if you have large capital expenditure, like plant or a van, even getting the VAT back on fuel makes a difference.
You need to work out if your customers would be willing to take on the extra 20% on LABOUR, your material cost will not go up much as you will be billing them as price ex vat, plus markup then VAT on this figure.
So if you done a job that was £200, 50/50 parts and labour. Say the material cost you £90 inc VAT and you added on £10 markup,
After VAT your new price to customer would be £185.00+VAT or £222.00
Its not just a blanket 20% more expensive on every job depending on the ratio of labour/material.