Implications involved when re-charging customer

[ChopStuey88]

Hello,

I will break my question down into simple points:

• We (VAT reg limited company) outsource to a tradesman to undertake work for customer
• Tradesman charges £200 + VAT to our company
• Our customer is not VAT registered

How do we handle raising the invoice to the customer? We are not looking to make any profit from this, only covering our costs and any tax/vat liability if any.

Does the customer only get charged £200 (inc VAT / no VAT?) where we claim back the VAT on the original invoice?

Or is the full amount £200 + VAT simply recharged to the customer?

Thanks

 

[Newchodge]

Ignore what VAT you have been invoiced for. Charge whatever amount you wish to charge, add VAt to that amount.

 

[ChopStuey88]

Ignore what VAT you have been invoiced for. Charge whatever amount you wish to charge, add VAt to that amount.

Thanks. Therefore our invoice to the customer would simply be the same £200 + VAT - Would this sufficiently cover our costs? Wouldn't there be tax implications on the funds received from the customer as profit?

 

[Newchodge]

I don't understand how you can possibly run a business without any income but it goes like this:

1. Your cost: £200
2. Your claim from HMRC: £40 VAT
3. Your income: £200
4. Your payment to HMRC: £40 VAT

1 cancels out 3, 2 cancels out 4. Leaving you with nothing. Nothing to pay tax on and nothing to live on.

 

[japancool]

No. You've been charged £200+VAT. Your cost is £200, since you reclaim the VAT.

You charge the non-registered customer £200+VAT. You pay the VAT to HMRC. Your effective receipt is £200.

Cost = £200, receipt = £200, total difference = £0. No profit made.

EDIT: My post crossed with Cyndy's.

 

[ChopStuey88]

I don't understand how you can possibly run a business without any income but it goes like this:

1. Your cost: £200
2. Your claim from HMRC: £40 VAT
3. Your income: £200
4. Your payment to HMRC: £40 VAT

1 cancels out 3, 2 cancels out 4. Leaving you with nothing. Nothing to pay tax on and nothing to live on.

I realise it sounds very backwards however this is a rare circumstance where we are doing one of our customers a favour - we just want to make sure we aren't shooting ourselves in the foot here!

Thanks for taking the time to clarify

 

[Newchodge]

I realise it sounds very backwards however this is a rare circumstance where we are doing one of our customers a favour - we just want to make sure we aren't shooting ourselves in the foot here!

Thanks for taking the time to clarify

Your biggest problem will be if the customer isn't satisfied. Their contract is with you, not the tradesperson who did the work. You will be responsibe for putting it right even if the tradesperson, with whom you have a contract, will not put it right.

 

[ChopStuey88]

Good point...

 

[MyAccountantOnline]

Hello,

I will break my question down into simple points:

• We (VAT reg limited company) outsource to a tradesman to undertake work for customer
• Tradesman charges £200 + VAT to our company
• Our customer is not VAT registered

How do we handle raising the invoice to the customer? We are not looking to make any profit from this, only covering our costs and any tax/vat liability if any.

Does the customer only get charged £200 (inc VAT / no VAT?) where we claim back the VAT on the original invoice?

Or is the full amount £200 + VAT simply recharged to the customer?

Thanks

Assuming your company is VAT registered and can recover the VAT charged in full if you dont want to make a profit or loss you recharge £200 plus relevant costs and VAT.

If you only charge £200 (plus VAT) you are only covering the cost of the tradesmans charges you aren't covering any of your costs.

If you dont want to make any profit on this why not get your client to contract directly with the tradesman?