VAT question

[taxing]

Hi,

I have a question on VAT if someone don't mind answering.

So as a company owner I am currently not VAT registered so I can't charge vat to my clients for the services I provide. If I subcontracted some of the work out to a vat registered company will they have to charge me VAT even though I won't be charging vat to my client?

Thanks

Saf

 

[NicoJ]

Yes.

 

[Cloud Accounting]

Yep. You'll have to try & find a subby who isn't registered if you don't want to incur the extra 20%.

 

[MyAccountantOnline]

Hi,

I have a question on VAT if someone don't mind answering.

So as a company owner I am currently not VAT registered so I can't charge vat to my clients for the services I provide. If I subcontracted some of the work out to a vat registered company will they have to charge me VAT even though I won't be charging vat to my client?

Thanks

Saf

As others have said - yes

If you are providing services to VAT registered clients you'd probably be wise to register for VAT yourself so that you can recover the VAT you are paying to your subcontractor.

 

[Mr D]

Hi,

I have a question on VAT if someone don't mind answering.

So as a company owner I am currently not VAT registered so I can't charge vat to my clients for the services I provide. If I subcontracted some of the work out to a vat registered company will they have to charge me VAT even though I won't be charging vat to my client?

Thanks

Saf

Because they are vat registered they have to charge you it.
Because you are not vat registered you have to pay it without being able to offset it.

If you become vat registered then you would claim back the vat you paid out against the vat you charge. Your vat registered clients would do the same.
In some ways a vat registered business can be cheaper for the clients overall if they are vat registered.

 

[Spur Support Services]

If your subcontractor is VAT registered, then they need to charge VAT to you (NB there exceptions for a few very specific types of services, but I am assuming these don't apply).
As you are not registered, you cannot reclaim that VAT, so it increases your normal business costs. These costs will reduce your taxable profits for corporation tax.

If the expense is very specific to the work you are performing and can be passed on to your client as a "disbursement" based on your contractual engagement with the client (and your client is VAT registered) then the client may be able to reclaim the VAT. Disbursement rules are complex, but ultimately your client would be responsible for ascertaining whether they apply. You would still charge the VAT inclusive amount when recharging a "disbursement".

In reality the disbursement option is likely to tick the "not relevant" or "too difficult" box.
If won't effect your profitability, but may be worth looking into if the subcontract fees are very high on specific client jobs, if it helps attract work.

Finally, the inability to reclaim your subcontractor's VAT doesn't necessarily mean that you should rush out to become VAT registered yourself if you are under the VAT income threshold, as there are a number of factors you should consider before reaching that decision.
However, the level of VAT embedded in your business costs is one of those factors, so it may be time to perform another review of whether VAT registration is right for you.

 

[taxing]

Thank you all for your detailed replies, much appreciated. Some food for thought on some of the points raised. Thank you.

 

[The Byre]

If yours is a B2B business then being VAT registered is an advantage and not a disadvantage.

We find it difficult as a company to use non-VAT reg companies for that reason - privately, of course, being non-VAT gives you a slight edge.