Is VAT applicable

[alfsyman]

I have a small gardening business and am not VAT registered.
I have been offered a 5 year contact with a management company to do the maintenance on a small private residential estate.
To secure the contract for me and fix the price for the residents they have asked me to invoice them for the full term of the contract and for them to pay monthly over the 5 year period covered.
Invoicing the full amount will not take me over the threshold for VAT this financial year, but next season they are considering offering me contracts on a number of other estates the income from which will push me over the VAT threshold next year or the year after.
Am I right that because the current invoice was issued before I registered, even though the payments will not be received until after I have registered for VAT, that no VAT will be due on this invoice in the future.

 

[Mark T Jones]

An accountant may correct me, but my understanding is that under cash accounting rules you won't need to register

 

[Ziggy2024]

You are correct that there won't be any VAT on the invoice produced.

Mark is unfortunately incorrect.

 

[Daybooks]

As per the guidance you start charging VAT from your effective date of registration.

Register for VAT

How to register for VAT, change your details, cancel your registration, register for VAT in EU countries.

www.gov.uk

As you drill into the detail you’ll see that if you invoice prior to effective registration date it will be exclusive of VAT and therefore the receipt post registration will also be exclusive of VAT – which should give you the answer!

Remember to check the thirty day rule too.

This is a good example where performing some number crunching might help you decide whether early registration is beneficial. It depends on your type of customer (e.g. VAT registered or not) and the level of recoverable inputs (i.e. VAT on purchases). There is also an upcoming budget where probably nothing should be ruled in or out.

 

[Paul Kelly ICHYB]

Whatever you do, make sure you have a contract in place.

Re VAT, if cash accounting, you account for things when you get paid. For accrual, it is when you invoice (accountants, please feel free to correct me if I am out of date).

If you were being paid a lump sum, a single invoice might make sense (re VAT registration/liability), but with a contract, paying monthly might be better - run a few numbers with you accountant.

 

[Bobbo]

To secure the contract for me and fix the price for the residents they have asked me to invoice them for the full term of the contract and for them to pay monthly over the 5 year period covered.

This seems like overkill. It is perfectly possible to agree a contract now for the entire 5 year term to provide security for both parties without invoiving for the entire value now.

I am not sure but there is something in VAT law about continuously supplied services. This could mean that even if you invoice the whole contract prior to VAT registration the payments under the contract you receive post VAT registration (which sounds like the majority of the 5 year term) are VATable.

 

[DontAsk]

To secure the contract for me and fix the price for the residents they have asked me to invoice them for the full term of the contract and for them to pay monthly over the 5 year period covered.

Five years is a very long time in today's uncertain climate. What happens if your costs increase significantly over that time? I would be looking for a monthly contract with annual re-negotiation, or at least a break clause if it becomes uneconomic.

 

[nelioneil]

I agree with the above post. Commercially if I was in your shoes, I would be happy to invoice up front at most for 1 year. Otherwise you are missing out the opportunity to increase your prices.

 

[Paul Kelly ICHYB]

Otherwise you are missing out the opportunity to increase your prices

But that is why they want the 5 year agreement, to lock the price in.

 

[WaveJumper]

All ready been mentioned by the wise owls above, no problem though having a five year contract in place (pretty normal in this arena) but it should include annual price reviews / increases and very specific rules on break clause

Clearly happy with your service's, just make sure you cover all your bases and protect your interest going forward

 

[MyAccountantOnline]

......
Am I right that because the current invoice was issued before I registered, even though the payments will not be received until after I have registered for VAT, that no VAT will be due on this invoice in the future.

No - the date of supply (for VAT purposes) will be the the earlier of the date of making the supply ie when you do the work or when you receive payment.

You need to be careful with this one. If you register for VAT you need to be able to add VAT to the charges going forward.

I wouldn't invoice in advance for 5 years.

 

[fisicx]

What happens in a year when something happens and you are unable to work? You are still contracted to provide the service which means paying someone else. You could end up losing a lot of money.

 

[HFE Signs]

Another point to consider: If you do this and you have a number customers not paying vat for 5yrs, any new customers will pay vat now, it may get awkward if customers know each other.

The ideal solution to future proof yourself would be to register for vat before the 5yr agreement is signed and everyone pays the vat.