Pricing a job 'plus VAT'???

[M&LMel]

Hi everyone. Ok this may seem like a silly question to those of you in the know, but we are pricing our first job plus VAT and are having a disagreement!!

So as an example our job goes (we are electrical contractors if that helps...)

Cost of materials to us from our wholesaler £10,000 + Vat = £12, 000
Cost of labour for the job £10, 000

Now what is confusing us is what we add VAT on, do we use the total of £22, 000 and then add VAT on to that??? Or do we not include the VAT our wholesaler is charging us so our total would be £20, 000 plus VAT???

I probably sound really silly asking this but when you don't know you don't know!

Thanks

 

[StevensOnln1]

You reclaim the £2k VAT charged by your supplier. Your quote to the client should be for £20k + VAT.

Will you be engaging a book keeper or accountant to do your VAT returns or trying to do them yourselves?

Sent from my GT-P1000 using UK Business Forums

 

[M&LMel]

Right ok, damn it I was wrong my husband will love the fact he was right! Haha

I do the books but we have an accountant to do all the other stuff, he's just away for a few days so couldn't ask him and we needed to get a quote out!

Thanks

 

[andygambles]

Unless of course you are marking up the materials.

 

[Billmccallum]

Hi everyone. Ok this may seem like a silly question to those of you in the know, but we are pricing our first job plus VAT and are having a disagreement!!

So as an example our job goes (we are electrical contractors if that helps...)

Cost of materials to us from our wholesaler £10,000 + Vat = £12, 000
Cost of labour for the job £10, 000

Now what is confusing us is what we add VAT on, do we use the total of £22, 000 and then add VAT on to that??? Or do we not include the VAT our wholesaler is charging us so our total would be £20, 000 plus VAT???

I probably sound really silly asking this but when you don't know you don't know!

Thanks

your quote would be what you agree with the client, if you quote for materials at cost, then stevens reply is spot on....

if not, you can quote for whatever cost you want, as andy says, you can add a mark up if you wanted to, depends on how much you value your customer....

so its either £20K + VAT

22K + VAT..... or more .....

 

[nelioneil]

Personally I would quote the cost of the service and leave it be. VAT is a government tax on taxible supplies and not of the business of the customer, it is irrelevant to the service performed.

Of course you can add at the end of the quote "vat is charged on taxable supplies" if you wish.

 

[StevensOnln1]

Not mentioning VAT on the quote could lead to confusion and the customer disputing the invoice total.

Sent from my GT-P1000 using UK Business Forums

 

[nelioneil]

Not mentioning VAT on the quote could lead to confusion and the customer disputing the invoice total.

Sent from my GT-P1000 using UK Business Forums

I disagree. In many organisations when it comes to purchase orders, the order anount is always net, and that is common practice. The supplier accepts this and sends an invoice quoting the number, usually with Vat added. Presuming they are VAT registered and the supply/goods are taxable.

Same concept should apply to quotes, the VAT element is not part of the service. I do think they should quote their vat number on quotes though, that is a good giveaway.

It's like going on a website to purchase web hosting. The supplier might say £45 web hosting for the year, when you go to the checkout screen, VAT is added. Sometimes on the front page, the web hosted could say £45 ex VAT, but it's not needed.

 

[David Griffiths]

If you don't mention VAT on the quote, then the customer has every right to object if you try to add it later. There is plenty of legal precedent that if a contract is silent on the question of VAT then the prices, if relevant, are treated as including any VAT chargeable.

If your quotation includes VAT, that is not an issue and if your customer is a consumer I think that it's better to quote a VAT inclusive price and not refer to VAT at all.

If it's a business customer, then quoting ex VAT is probably the better option, but you must make it clear that VAT will be added at the going rate,

If you mention VAT in quotations to private individuals there is the risk that they will come back and ask if you'll knock off the VAT "for cash" and that's not a place that you should be going to.

 

[M&LMel]

The customer is a VAT regirstered business so will be claiming the VAT back.

We will be adding a mark up on material. So the material cost to us (in the example) will be £12000, which we will add our mark up on for example 20% which will make the total of materials £14400.

What was confusing me (not taking into account labour) was do we then add on 20% VAT onto the total amount of £14400??? If not do we add on VAT at our wholesale price, or our wholesale price plus mark up??

Thanks

 

[Anonymouse72]

i could be missing the point here so forgive me, but i think you need to forget about VAT in your workings out. just get your total price for materials & labour, including any profit margin/mark up, that will be the cost of the job. VAT just gets added on at the very end.

for commercial jobs we always quote a net price '+ vat @ 20%' (the actual amount of vat won't be detailed until invoice stage), this is usually the norm for business2business.
for domestic, we always quote a total price including vat & detail that fact, 'prices include vat @ 20%'.

 

[Billmccallum]

The customer is a VAT regirstered business so will be claiming the VAT back.

We will be adding a mark up on material. So the material cost to us (in the example) will be £12000, which we will add our mark up on for example 20% which will make the total of materials £14400.

What was confusing me (not taking into account labour) was do we then add on 20% VAT onto the total amount of £14400??? If not do we add on VAT at our wholesale price, or our wholesale price plus mark up??

Thanks

Materials £14400
Labour £10000

Total £24400

VAT £ 4880 20% of total

Total £29280

 

[Newchodge]

Possibly silly question, but are you VAT registered? If not you cannot charge VAT at all or claim it back. So cost to you is materials 12,000, labour 10,000, job total cost is 22,000 then add your mark up to get total price.

If you are VAT registered, then cost to you is materials 10,000, labour 10,000, job total cost is 20,000 then add your mark up, to get total price. Then add VAT to that.

If customer is VAT registered quote as total price plus VAT @ 20%.

If customer is not VAT registered quote total price including VAT.

 

[Caspar]

You can do it however you want unless you have told the customer the materials are at cost. However - you are in this to make profit so I would certainly mark up the materials before adding Vat.
All you need to think of is what do I want to be left with after ive done my vat return.
If you want £14, 000 for a job and (net materials where 5000 which you mark up by 20% taking it to £6, 000) your net invoice would be £20, 000 then add 20% VAT on top.
Remember whenyou buy materials you are probably paying less than they would if they went into a store. And you have to take time ordering and do admin for this so why not add something on to cover your efforts anyway.
Caspar

 

[andygambles]

I disagree. In many organisations when it comes to purchase orders, the order anount is always net, and that is common practice. The supplier accepts this and sends an invoice quoting the number, usually with Vat added. Presuming they are VAT registered and the supply/goods are taxable.

Same concept should apply to quotes, the VAT element is not part of the service. I do think they should quote their vat number on quotes though, that is a good giveaway.

It's like going on a website to purchase web hosting. The supplier might say £45 web hosting for the year, when you go to the checkout screen, VAT is added. Sometimes on the front page, the web hosted could say £45 ex VAT, but it's not needed.

Disagree even more.

1. Send quote to large corporate or Public sector ex VAT.
2. Get PO for ex VAT amount.
3. Send invoice + VAT
4. Get invoice placed on hold as it is more than PO amount
5. Spend 8 weeks trying to get invoice released for payment
6. Go back to 1 but send new quote with VAT

 

[nelioneil]

Disagree even more.

1. Send quote to large corporate or Public sector ex VAT.
2. Get PO for ex VAT amount.
3. Send invoice + VAT
4. Get invoice placed on hold as it is more than PO amount
5. Spend 8 weeks trying to get invoice released for payment
6. Go back to 1 but send new quote with VAT

That seems very familiar!

I'm trying to think from a legal point of view, I don't think a quote constitutes a valid contract. Probably a invitation to treat. Whereas I think a PO would form a valid contract.

Need some clarification :|

 

[Newchodge]

I thought the quote was the offer. Sending the PO on the basis of the quote would then be the acceptance.

 

[greengecko]

Disagree even more.

1. Send quote to large corporate or Public sector ex VAT.
2. Get PO for ex VAT amount.
3. Send invoice + VAT
4. Get invoice placed on hold as it is more than PO amount
5. Spend 8 weeks trying to get invoice released for payment
6. Go back to 1 but send new quote with VAT

Agreed, had the same situation today but only for the shipping costs (multiple pallets to Europe) - If I hadn't spotted it our invoice and their PO would've been different, meaning hours on the phone to their accounts to try and get it resolved.

 

[Alan]

£10,000 - cost of materials ex VAT
£2,000 - 20% markup on material
£10,000 - cost of service
------------
£22,000 ex VAT

Quote inc VAT at 20%
£26,400

 

[roydmoorian]

£10,000 - cost of materials ex VAT
£2,000 - 20% markup on material
£10,000 - cost of service
------------
£22,000 ex VAT

Quote inc VAT at 20%
£26,400

The £22,000 is your quote - the extra £4,600 is a cost from government for which you are acting as Tax collector - it is not "your" money and never will be but it does need to be detailed as a separate item on a b2b quotation so that a smart a***e can't use it as a reason to delay payment.

 

[arcon5]

Surely a quote should be how much the customer is due to pay - irrespective of whether some go to the government? The VAT element can be itemised within that quote to give the customer a view of the real cost to them.

IMO to give quotes out saying £x then asking for £y is really poor practice

 

[arcon5]

Op, assuming your vat registered then the cost of goods to you is £10k despite the invoice being £12. As you reclaim a portion of that. So if adding a markup surely it would be on this figure?

 

[Scalloway]

If the customer uses their PO system to commit expenditure against their budget you must quote the price net of VAT, as the VAT will be reclaimed and not part of the customer's cost.

 

[arcon5]

That's a good point. But you can still quote net and gross on the same invoice. Problem with not quoting VAT is makes it more difficult to manage cashflow. Especially if for example settlement discounts or similar are available which would affect the vat anyway, since vat is calculated on the discounted figure whether taken or not

 

[Paul Kelly ICHYB]

It does not matter what total you put on your quote, as long as you specify if VAT is excluded or included in the total. You also have to be VAT registered to play with VAT!!!!

If you want to split parts and labour, fine!

Using the phrase 'plus VAT' is ambiguous! To me, it means the VAT is included; to others it means it is added after!

Have a look at HMRC guidance.

 

[sanjiv]

When you work out costs, you always use ex VAT as you claim the VAT back.

In your example, labour is £10k and materials £10k. This is £20k in total. On your sales, you have to pay VAT. So you would charge the customer 20% VAT on top of the total.

If you wanted a £5k profit in there, this is what your accounts would look like:
Labour £10k
Materials £10k
Profit £5k
TOTAL £25k

You would collect £30k from your client (inc. VAT) Then VAT owed to HMRC £5k.

I would suggest you mention prices excluding VAT on your quote just to be perfectly clear. There is no harm in writing it and is may help stop confusion - especially if you don't know your customers VAT position.

Hope that helps!

 

[roydmoorian]

The key to all this is in the name Value Added Tax.

This works on the principle that each business in a series of transactions ends up paying 20% tax to the government on it's own profit - i.e it's own "added value"

 

[Billmccallum]

When you work out costs, you always use ex VAT as you claim the VAT back.

In your example, labour is £10k and materials £10k. This is £20k in total. On your sales, you have to pay VAT. So you would charge the customer 20% VAT on top of the total.

If you wanted a £5k profit in there, this is what your accounts would look like:
Labour £10k
Materials £10k
Profit £5k
TOTAL £25k

You would collect £30k from your client (inc. VAT) Then VAT owed to HMRC £5k.

I would suggest you mention prices excluding VAT on your quote just to be perfectly clear. There is no harm in writing it and is may help stop confusion - especially if you don't know your customers VAT position.

Hope that helps!

not entirely correct, the OP states £10K + VAT cost of materials, therefore if your scenario was used, the VAT due would be £3k not £5k.

£5k collected
£2k already paid to supplier
£3k balance to pay

 

[sanjiv]

not entirely correct, the OP states £10K + VAT cost of materials, therefore if your scenario was used, the VAT due would be £3k not £5k.

£5k collected
£2k already paid to supplier
£3k balance to pay

I meant to say collected