Unregistered subcontractor for VAT

[laurencem]

Morning all. First post on UKBF

I am a VAT registered sole trader in the plumbing and heating industry. I have used a subcontractor who is not VAT registered to supply and lay a floor in a bathroom.

He has invoiced me £400 (£150 labour, £250 materials) with no VAT to pay.

I am invoicing my customer for all the work we have done. Everything we have done directly is subject to 17.5% VAT. I am not sure what to do about passing on the £400 to the customer. THe flooring fitter has paid VAT on the materials he has supplied so if I am required to charge the customer £400 + VAT, then they are paying VAT twice on the materials.

Any advice would be much appreciated.

Many thanks,

Laurence

 

[David Griffiths]

You charge VAT on your full invoice to the customer. The fact that the subbie is not registered or that materials are involved is not relevant

 

[laurencem]

Thanks David

If you are saying that I should charge £400 + VAT to the customer, they are being charged VAT twice on the materials.

Is there a way I can record that I am already paying VAT on the materials portion, deduct this (£250 - 17.5%) , charge VAT on the remaining Net amount (£150 + £212.77) + 17.5%.

Still quite confused as to how this should work re. me recording this as input tax so forgive me if I'm talking gibberish!

Many thanks,

Laurence

 

[David Griffiths]

Thanks David

If you are saying that I should charge £400 + VAT to the customer, they are being charged VAT twice on the materials.

Is there a way I can record that I am already paying VAT on the materials portion, deduct this (£250 - 17.5%) , charge VAT on the remaining Net amount (£150 + £212.77) + 17.5%.

Still quite confused as to how this should work re. me recording this as input tax so forgive me if I'm talking gibberish!

Many thanks,

Laurence

No there isn't. You charge VAT on your supply to your customer. That's basic.

There is no input tax for you because you've used an unregistered subcontractor, who cannot give you a VAT invoice. You simply have to ignore VAT lower down the chain.

 

[wizzard]

I thought you would invoice your customer as normal, then pay the subby out of that you've invoiced your customer for the job?

Or am I wrong in my understanding?

 

[laurencem]

I suppose it makes sense that I have to ignore the VAT lower down the chain as I'm not being provided with a VAT invoice.

You are correct Wizzard. I was just hoping that there was a way of recording the VAT already paid on the materials so the customer doesn't pay twice.

Is there no way that I can ask the subcontractor to record that he has paid VAT on his materials so I can claim this back in some way? ie:

Subbie Invoice

Materials: £250.00 including VAT at 17.5%
Labour: £150.00 No VAT

Thanks to everyone.

Laurence

 

[wizzard]

I suppose it makes sense that I have to ignore the VAT lower down the chain as I'm not being provided with a VAT invoice.

You are correct Wizzard. I was just hoping that there was a way of recording the VAT already paid on the materials so the customer doesn't pay twice.

Is there no way that I can ask the subcontractor to record that he has paid VAT on his materials so I can claim this back in some way? ie:

Subbie Invoice

Materials: £250.00 including VAT at 17.5%
Labour: £150.00 No VAT

Thanks to everyone.

Laurence

In my understanding not really as you didn't buy the materials for the subcontractor to use.

How is your customer paying VAT twice for the materials?

 

[David Griffiths]

Is there no way that I can ask the subcontractor to record that he has paid VAT on his materials so I can claim this back in some way? ie:

Subbie Invoice

Materials: £250.00 including VAT at 17.5%
Labour: £150.00 No VAT

Thanks to everyone.

Laurence

No again. He's not VAT registered and cannot give you a VAT invoice.

And off topic I'll give odds on that he didn't pay £250 for the materials either, whatever the rules say

 

[wizzard]

Surely you would invoice your customer to include the £400 you paid to your subby, did you even tell the customer when you quoted for the job that you would need to hire a subby to lay the floor?

 

[laurencem]

Fair point David, you're probably right about the £250.

Wizzard - re: "did you even tell the customer when you quoted for the job that you would need to hire a subby to lay the floor?""

Yes, why, what are you asking? We quote to include our works, but in this case, we passed on the cost of the flooring works. We usually tile the floor which we do ourselves, but used Karndean this time which is a specialist installation. Customer can choose various designs which affect both the material cost and the installation charge. We therefore do not include this in our original quotation but provide an estinate and advise the customer of the actual cost once they advise us of the chosen design. We like to handle all the invoicing to ensure that the customer has only one point of contact and that the flooring subcontractor invoices the correct amount.

Are you suggesting I should invoice £400 total? ie: £340.43 + VAT? Not quite sure what you are saying here?

Customer is paying VAT on the materials twice as (excluding markup), the subcontractor pays £212.77 + VAT = £250.00. If I charge the customer £400.00 + VAT then they are paying VAT on the materials a second time (£212.77 + VAT + VAT) and the VAT on the labour (£150.00 + VAT) once.

 

[wizzard]

I was asking that from a costings point of view.

I don't know whether this is correct or not, I'm sure someone will correct me.

Add the £400 costs from your subby to your normal charges, then apply the VAT to the total. Then your customer will only pay 1 lot of VAT.

 

[David Griffiths]

I can see what the OP is saying - the original materials cost includes VAT and that is being passed on to the customer with VAT added again. So if the original price of the materials was £213 + Vat = £250 there's another £43.75 added on top. That's just the way things are.

For future reference, there are two things that you could consider

1 - you purchase the materials for the subcontractor, so you get the VAT recoverable as input tax. That's not always practical, however. Worse, if the Revenue's new proposals for subcontract status do become law, then it wouldn't be possible as supply of materials is one of their requiremens for the subcontract relationship to exist

2 - get the customer to engage the subcontractor direct. Again there are practical issues. The customer must understand that the subbie is responsible for the job, and must pay direct

The second scenario works if you buy carpets from one of the big warehouses - the carpet company can give details of a fitter but is not party to the contract. It works in other cases as well but goes wrong if the money is channelled through the main contractor, or if the customer involves you in any disputes.

These things must be genuine, or it will end in tears