My client says he pays VAT on my invoices

[nico X]

My client is VAT registered and I'm a sole trader (non VAT). I invoice him for IT Consultancy services, and he says he needs to pay VAT on what I'm charging him.

Why does he need to pay VAT on money going out from his business?

 

[pcourtney]

VAT registration is only compulsory for businesses with a turnover of £85,000 or more

While businesses with a taxable turnover below this £85,000 can register for VAT voluntarily,
you can tell your client that this is not the case in your situation. and his assumption is incorrect that "he needs to pay VAT on the invoice you have submiited to him

 

[Displaycentreuk]

You client doesn't understand how VAT works. He needs to charge his customers VAT and reclaims VAT charged to him by VAT registered suppliers. You are not VAT registered and so your invoices will make no mention of VAT. He pays your invoices (which make no mention of VAT) and thus is not paying-out VAT on these purchases and will not be claiming back any VAT (because he hasn't paid any) on purchases from you.

 

[nico X]

You client doesn't understand how VAT works. He needs to charge his customers VAT and reclaims VAT charged to him by VAT registered suppliers. You are not VAT registered and so your invoices will make no mention of VAT. He pays your invoices (which make no mention of VAT) and thus is not paying-out VAT on these purchases and will not be claiming back any VAT (because he hasn't paid any) on purchases from you.

Just to get it right. I deliver a service to my client and I'm the one that charge him for the service. I don't add VAT as I'm not VAT registered. Yet he says he needs to pay VAT on the amount I charge him (money going to the government). And I believe he wouldn't need to pay tax on money going out.

It's just confuses me, I will have to get this clarified with him. I believe if I charge him £200, he doesn't pay more than that £200, and that money goes to me, which I need to tax as profit ...

 

[matlob]

If you invoice him 200 he pays you 200. There is no vat involved at all as you are not vat registered. He puts it through as a payment with no vat.

If you are mainly dealing with B2B and clients are vat registered it may be worth registering and going onto the flat vat rate scheme as this can increase your profit. Depends on other factors so check with accountant

 

[Scalloway]

If you were VAT registered he would pay VAT you add on top of what you charge then reclaim it. Their is zero effect for either of you.

 

[Paul Norman]

Provided your total turnover is below the VAT threshold, you do not need to charge them.

Indeed, if that is the case, you are not legally allowed to charge them.

If, of course, your turnover is above that limit, then you must register.

 

[Frank the Insurance guy]

I suspect your client is thinking he can claim back VAT on your £200 invoice, therefore costing him less overall! But he cannot do that unless you provide him with a VAT invoice. Clearly as you are not VAT registered, you cannot do this and will have to tell him that he cannot claim a VAT rebate on your invoice!

 

[Newchodge]

If you invoice him 200 he pays you 200. There is no vat involved at all as you are not vat registered. He puts it through as a payment with no vat.

If you are mainly dealing with B2B and clients are vat registered it may be worth registering and going onto the flat vat rate scheme as this can increase your profit. Depends on other factors so check with accountant

However, if you invoice him for £200 and that amount includes VAT (which is what he wants) you get £166.66 and he can claim £33.34 back from the government.

 

[MyAccountantOnline]

My client is VAT registered and I'm a sole trader (non VAT). I invoice him for IT Consultancy services, and he says he needs to pay VAT on what I'm charging him.

Why does he need to pay VAT on money going out from his business?

Have you explained to your client you aren't VAT registered?

I wonder if he possibly thinks the reverse charge should apply?

 

[TheCyclingProgrammer]

I think Frank has hit the nail on the head - it sounds like OP's customer thought they were VAT registered so expected the price to be £200 inc. VAT - of course OP is not VAT registered so the net cost is £200, making them more expensive than OP's customer expected.

 

[nico X]

He has become very argumental, this is his answer. If he needs to pay me £200. He then says he needs to generate another £200 (basically sell merchandise which are VAT included), and basically, as I get it this is the reason he needs to pay VAT on that £200. To fill up the expense with sell, and the sell he makes is his merchandise which are VAT sell.

What I don't understand is why does he need to take out £200 and then make up for that £200? This is for me a very suspicious case, is he trying to do some defraud or anything else.

I don't understand his way of reasoning.

This is basically just an expense for him, I'm not employed, I'm just a freelancer ... Why does he have to register -£200 for an expense, and then cover it up by doing a sale? What is he trying to do here?

 

[Frank the Insurance guy]

I've read that 3 times and I'm still confused!

I suggest he talks to his accountant to explain how the VAT system works!

 

[Newchodge]

Just tell him you are not VAT registered and he is telling you to commit fraud, which you will not do.

 

[nico X]

Just tell him you are not VAT registered and he is telling you to commit fraud, which you will not do.

No I will send him invoices. He suggested that he just pays me cash. The thing is I don't understand what he is trying to accomplish with this. When all of you say, there is no other expenses for him, he doesn't have to pay VAT on my invoice, and I think he can even lower his tax, as this is an expense that will lower his profit.

So what exactly is he trying to do in this scenario? Why is he asking me to be paid in cash/not invoice him. And that he needs to fill up the expense with his merchandise which are VAT sells, if he is to take £200 out from the till to pay my invoice. He would still need to take that £200 from somewhere, is it merchandise he sells without putting them into the till, and saving that money to pay me. Is this what he is trying to do? Squeeze out every penny he can?

 

[Newchodge]

No I will send him invoices. He suggested that he just pays me cash. The thing is I don't understand what he is trying to accomplish with this. When all of you say, there is no other expenses for him, he doesn't have to pay VAT on my invoice, and I think he can even lower his tax, as this is an expense that will lower his profit.

So what exactly is he trying to do in this scenario? Why is he asking me to be paid in cash/not invoice him. And that he needs to fill up the expense with his merchandise which are VAT sells, if he is to take £200 out from the till to pay my invoice. He would still need to take that £200 from somewhere, is it merchandise he sells without putting them into the till, and saving that money to pay me. Is this what he is trying to do? Squeeze out every penny he can?

It does not matter in the slightest whether he pays you in cash or any other way, as long as you account for your income properly. You can issue your invoice and he can throw it away. The thing you CANNOT do is invoice him for VAT. That would be illegal.

What he is trying to do is anybody's guess. Perhaps he is just very stupid?

 

[nico X]

It does not matter in the slightest whether he pays you in cash or any other way, as long as you account for your income properly. You can issue your invoice and he can throw it away. The thing you CANNOT do is invoice him for VAT. That would be illegal.

What he is trying to do is anybody's guess. Perhaps he is just very stupid?

Of course, there is no reason for me to add VAT on my invoice, we have that clear.

Well I don't think he wants to throw the invoice away, because this can be used against him, if I would get under some investigation and my invoices points to his company, then his company might get under a check, if he as he says doesn't register his payment.

I'm clear that he understands this very good, as he has mentioned it, that I should tax my income properly. Yet now I have a full time job, and he feels like I can as well stop invoicing him ...

"Perhaps he is just very stupid?" I doubt that because he called me stupid, and that he has no time to explain this to me over and over again. Yet the thing is I haven't got a good explanation to start with.

 

[Paul Kelly ICHYB]

1 - Ask him to speak to his accountant (or makes contact with Cyndy or Nicola)
2 - Remind him that when you do become VAT registered, he will be paying you £240!

 

[Frank the Insurance guy]

He suggested that he just pays me cash.

If he is offering to pay cash - take it. Not sure how this will affect him, but at least you'll get paid and no longer have to worry about his issue with VAT and invoice.

Take the cash and move on to the next job.

 

[nico X]

Let me quote him (edited):

Look first just don't talk when you are competent of Something OK ?????? If I pay you cash I don’t have to pay VAT do you understand??????? If I have to pay £200 to you, I have to generate another £200 to put in the till Do you understand!!!!! If I pay you cash is different Every single pence I put through the till is VAT and taxable ...

I don't get it, but somebody might. I won't press him any more, as you can see from his answer.

 

[Frank the Insurance guy]

Ahhh...Sounds like a system issue that he doesn't know how to deal with when it comes to no VAT!

Sounds like any expenses on his system automatically show VAT regardless and he doesn't know how to correct this - so thats why cash would work as it wouldn't be through the system!!

Suggest he gets a new system or learns how to use it properly!

Either way - take the cash!

....or he's doing something he shouldn't!....but that doesn't affect you anyway!

 

[Newchodge]

Let me quote him (edited):

Look first just don't talk when you are competent of Something OK ?????? If I pay you cash I don’t have to pay VAT do you understand??????? If I have to pay £200 to you, I have to generate another £200 to put in the till Do you understand!!!!! If I pay you cash is different Every single pence I put through the till is VAT and taxable ...

I don't get it, but somebody might. I won't press him any more, as you can see from his answer.

He is both very stupid AND attempting fraud. Ignore him.

 

[nico X]

Ahhh...Sounds like a system issue that he doesn't know how to deal with when it comes to no VAT!

Sounds like any expenses on his system automatically show VAT regardless and he doesn't know how to correct this - so thats why cash would work as it wouldn't be through the system!!

Suggest he gets a new system or learns how to use it properly!

Either way - take the cash!

....or he's doing something he shouldn't!....but that doesn't affect you anyway!

That's what I thought as well.

What do you think of this scenario?

1. He sells something for £200. He doesn't give the buyer recite, he takes the money and pays that money to me in cash. (I don't invoice.) He doesn't register that sell (commit fraud).
2. (I invoice) Now he takes £200 out of the till to pay me. He now gives the buyer recite for the £200 sell, and he needs to pay 20% VAT on that sell. In this scenario he is £40 down compared to the first scenario.

Now why is he afraid to have an approximately of £100–£300 of expense every month?

 

[Frank the Insurance guy]

Hi Nico,

You don't want to be party to a fraud, if that is what is happening.

Keep things professional - invoice him for your work, receive payment (cash is fine) and give him a receipt for it.

 

[TheCyclingProgrammer]

The guys clearly an idiot, just take the cash and forget about him. You have raised an invoice for your own records and will be presumably reporting the income. What he then does is his lookout.