VAT

[Andre78]

Hi I run a small landscape company with my brother. We are approaching the VAT threshold I think. I have won a contract that will provide a months work but the expenses will put me way over the VAT threshold.

Do all expenses count towards vat? My brother and I don't earn a huge amount and certainly would lose our competitiveness if we had to add VAT on our quotes. Is there anyway I can avoid putting the expenses of this current contract through my books to avoid having to enter the VAT shenanigans? Or would that be fraud. My expenses are my expenses, I don't make anything off of them, I can't understand why I need to pay VAT or charge for VAT for something I get no benefit from. If I just got the customer to order the materials this would be totally legal right?

 

[Andre78]

What I am getting at here is that my bro and I earn about 20k each for working damn hard. We spend another 30k ish of materials etc etc. It's getting more and more difficult to avoid breaching the VAT threshold. If I breach it, suddenly I have to add VAT to my materials and my services. This would make it almost impossible to compete in and very competitive industry.

Let's say a person earn't 10k yearly but needed to spend 67k on materials in order to earn that 10k. Would he or she need to charge VAT on their meagre wage in order to avoid losing the 16% or whatever it works out to be?

I'm confused

 

[faradaykeynes]

VAT registration is based on your income not expense

 

[Andre78]

OK, I thought it was turnover

 

[faradaykeynes]

yes turnover or income same thing, not your profit

 

[businessfunding]

Hi I run a small landscape company with my brother. We are approaching the VAT threshold I think. I have won a contract that will provide a months work but the expenses will put me way over the VAT threshold.

Do all expenses count towards vat? My brother and I don't earn a huge amount and certainly would lose our competitiveness if we had to add VAT on our quotes. Is there anyway I can avoid putting the expenses of this current contract through my books to avoid having to enter the VAT shenanigans? Or would that be fraud. My expenses are my expenses, I don't make anything off of them, I can't understand why I need to pay VAT or charge for VAT for something I get no benefit from. If I just got the customer to order the materials this would be totally legal right?

Getting the customer to order and pay for materials is legit and is fairly common practice in certain trades (EG landscape gardening) where a trip the the wholesaler actually helps the customer to be involved in the decision process. It can also avoid dispute when gods have been chosen.

Use your own suppler account and get a kickback.

Other than that, I'm afraid VAT is inevitable

As the saying goes - tax & nurses

 

[Andre78]

thank you very much for delaying my impending heart attack. I thought I was wrong somewhere. So am I right in thinking that ONLY profit after expenses but obviously before tax contributes towards whether or not one has to register for VAT?

Thanks again

 

[ethical PR]

thank you very much for delaying my impending heart attack. I thought I was wrong somewhere. So am I right in thinking that ONLY profit after expenses but obviously before tax contributes towards whether or not one has to register for VAT?

Thanks again

I am not quite sure what you mean by this, however if you look on the government site its says

When you must register for VAT



If you're a business and the goods or services you provide count as what's known as 'taxable supplies' (see 'What is VAT charged on' below) you'll have to register for VAT if either:

• your turnover for the previous 12 months has gone over a specific limit - called the 'VAT threshold' (currently £77,000)
• you think your turnover will soon go over this limit

So therefore if you're turnover is £77K or more you need to pay VAT. If most of your work is for other companies over the threshold this shouldn't make you less competitive as they can claim back VAT, just as you will be able to when you buy goods and services.

 

[Anna Chandley]

thank you very much for delaying my impending heart attack. I thought I was wrong somewhere. So am I right in thinking that ONLY profit after expenses but obviously before tax contributes towards whether or not one has to register for VAT?

Thanks again

It's the total turnover that counts towards the vat registration limit. If you recharge expenses to the customer then the recharged expenses are part of your turnover and count towards registration.

As Kickstartbtm has said it is perfectly acceptable for your customers to purchase the materials themselves.

Anna

 

[Andre78]

OK I understand. So expenses that go through the books do add to the VAT level.

If hypothetically 90% of my turnover was expenses, which btw is not totally outside the realm of possibility under certain circumstances, and I couldn't get the customer to order materials for whatever reason. This would mean in order to earn my £120 daily which is what I charge I would have to hand in quotes accounting for my daily rate at £144 per day instead of £120 unless I was willing to take a drop in wage, which I'm not. I would lose a significant percentage of my work all because my expenditure which adds nothing to my personal income causes me to breach the VAT limit. This seems absurd to me. Seems almost to be a penalty for success!

 

[Andre78]

It's sometimes too convoluted to get a customer to purchase items as there are too many, too awkward to source or too specific. Is it legal to pay for said items with cash, hand over receipts for items to the customer and get the cash back from them and they have the receipts for the items instead of an invoice?

 

[businessfunding]

It's sometimes too convoluted to get a customer to purchase items as there are too many, too awkward to source or too specific. Is it legal to pay for said items with cash, hand over receipts for items to the customer and get the cash back from them and they have the receipts for the items instead of an invoice?

You are walking the line - I would get legal pinion

In my view, if you used personal cash (not though your business account) and got the customer to refund you you might be OK, But I can't say that with confidence.

 

[Andre78]

You are walking the line - I would get legal pinion

In my view, if you used personal cash (not though your business account) and got the customer to refund you you might be OK, But I can't say that with confidence.

That's what I would assume also. However, I take nothing for granted.

Can someone answer me this question? Let's say my business required large sums of expenditure to carry out my duties. I don't know, I erect gold plated fencing or something... So expenses almost instantly put me over the threshold but my actual earnings were poultry. I would have to charge 20% more than the next guy does in order to earn the same wage just because I used better materials. Is this right? If so, it just doesn't make any sense at all!

 

[faradaykeynes]

Get your documentation right, i.e your customer should get material invoice from independent suppliers, your customer can pay you to buy material, as long as you are not making margin on material you should be OK.

it like letting agents, they receive rent from tenants and then pass on you landlords after deducting their commission. Turnover for letting agents is only commission not the whole lot bcaz they have documentation to support that.

So if you put in your contract clear and upfront with customer that they need to buy material themselves and if required we can help in this process but will not make any profit on material and clearly state charges are related to labour only then it should be ok.

 

[Andre78]

Well the funny thing is that although I get discounts for trade I nearly always pass them on to the customer as it increases my number of successful quotes. Landscaping is just too competitive right now to try and make any commission on top of your wages. However again, surely even if I made 10% on materials supplied it should only be that 10% that goes towards VAT threshold alone and not the expense of the materials needed to complete the job because that is all I earn, that 10% plus my wages. If I'm lucky!

 

[faradaykeynes]

No, if you buy material and invoice is in your name and pass it on to buyer with margin then all material cost+margin is part of your turnover

 

[Andre78]

So then if Joe Bloggs uses rubbish materials and keeps under the threshold he can vie for the same quote as me and charge 20% less because he cuts corners wherever and whenever possible. I find this absolutely ridiculous and I am appalled.

 

[businessfunding]

The first thing to understand is that the default situation is that all businesses are VAT registered; the threshold was created to help people to start up.

The second thing is that you won't change the system so the best way forward is to understand it and see how it can work for you.

 

[faradaykeynes]

The first thing to understand is that the default situation is that all businesses are VAT registered; the threshold was created to help people to start up.

What, plz come agian?

 

[businessfunding]

What, plz come agian?

My point is that the £77K threshold was added to the system to hep smaller businesses. The favoured position of HMRC would be to have universal VAT registration.

 

[faradaykeynes]

OP, have you considered flat rate vat scheme?

 

[Mpg]

Builders get round this by buying the materials and then giving you the receipts.

Telling you that you owe them £2000 in materials and £500 labour.
They give you an Invoice for Labour for £500 thats what they put through their books.

 

[Anna Chandley]

It's sometimes too convoluted to get a customer to purchase items as there are too many, too awkward to source or too specific. Is it legal to pay for said items with cash, hand over receipts for items to the customer and get the cash back from them and they have the receipts for the items instead of an invoice?

No, if you are buying the items for cash and handing over the receipts for reimbursement you should be charging VAT just as you would if you were buying the items and recharging via an invoice. The underlying transaction is the same, only the payment method has changed.

Anna

 

[faradaykeynes]

plus if you are dealing with business customers then above trick wont work, thought its not legal anyway

 

[Anna Chandley]

OP, have you considered flat rate vat scheme?

If a large part of your turnover is recharged expenses then under the Flat Rate Scheme you will not be able to reclaim the VAT you were charged on these purchases. You would have to work the numbers but if most of your purchases are standard rated it seems unlikely that the Flat Rate Scheme would benefit you.

Anna

 

[Mpg]

If 90% of your work is B2B then I wouldn't worry about VAT registration the benefits will out way the negatives. 20% less business fuel and Vat back on your supplies.

If 90% of your turnover is supplies and you turnover say £100k per year that could be another £18k back in your pocket

 

[JamesMason67]

Builders get round this by buying the materials and then giving you the receipts.

Telling you that you owe them £2000 in materials and £500 labour.
They give you an Invoice for Labour for £500 thats what they put through their books.

Naughty! ; )

 

[JamesMason67]

If 90% of your work is B2B then I wouldn't worry about VAT registration the benefits will out way the negatives. 20% less business fuel and Vat back on your supplies.

If 90% of your turnover is supplies and you turnover say £100k per year that could be another £18k back in your pocket

I would imagine in this line, it was mostly private domestic work.

Its a difficult one mate, but basically every penny you are paid, whether for labour, materials, absolutely anything counts towards the VAT threshold. If you do a job for £77,001 and make a tenner out of it you have to get VAT registered. Its a real pain, cos to a domestic client VAT is a real expense that cant be claimed back. This will make a VAT registered business less competitive in the private arena.
Hope that helps
James

 

[Andre78]

OK thanks

So the upshot is do whatever possible to stay below VAT to stay competitive even if it means taking a month off to avoid it. Or aim to completely surpass the threshold and take the hit. One or the other.

How does one go about telling their customers that they are having to raise their prices by 20%? I would lose a lot!

For example I could forecast to hit the VAT threshold mid year. Get in some good quotes for the remainder. Register for VAT and charge for it, and the following year not be able to find any work. Would I un-register for VAT or what? If I did this I'd have to tell my customers my prices were going back down. Honestly, I think this system sucks!!

 

[David Griffiths]

Use your own suppler account and get a kickback.

Extremely bad advice. That means that the wholesaler is supplying you and you are supplying the customer. If you get the customer to purchase the materials they must be invoiced in their own name.

There are well documented cases of businesses doing this and coming to very expensive grief with HMRC

 

[iKam]

You could incorporate two different company's. Call one Garden landscaping and the other Garden maintenance. Stay below the threshold of both the company's, business as usual.

Although this is classed as 'avoiding tax' but as long as you can prove both companies are slightly different in the services they provide that shouldn't be a problem. But it does mean two sets of accounts two sets of bank accounts etc etc

 

[David Griffiths]

You could incorporate two different company's. Call one Garden landscaping and the other Garden maintenance. Stay below the threshold of both the company's, business as usual.

Although this is classed as 'avoiding tax' but as long as you can prove both companies are slightly different in the services they provide that shouldn't be a problem. But it does mean two sets of accounts two sets of bank accounts etc etc

More bad advice. This would almost certainly fall foul of the regulations which prohibit artificial separation of businesses. And that's if each business is completely separate - different telephone numbers, different employees, different equipment. If it's all muddled up, HMRC would simply treat it as one business anyway and seek VAT on the combined turnover from the date that it exceeded the threshold

 

[JamesMason67]

More bad advice. This would almost certainly fall foul of the regulations which prohibit artificial separation of businesses. And that's if each business is completely separate - different telephone numbers, different employees, different equipment. If it's all muddled up, HMRC would simply treat it as one business anyway and seek VAT on the combined turnover from the date that it exceeded the threshold

Good afternoon David
What would constitute proper separation of two businesses carrying out the same kind of work? What would be the key points? Thank you for your time.
James

 

[David Griffiths]

Have a look at the HMRC explanation

 

[JamesMason67]

That was very helpful David, thank you.
James

 

[ustina]

i thinking of incorporating ltd in Uk. Import goods from EU and sale in uk. if i register for VAT, the EU supplier will charge me for VAT, i heard its zero rated , where i shell reclaim Vat If EU supplier will charge me, how to avoid EU VAT charges .What is EU refund VAT?

 

[benni]

Surely there is a case for treating the materials in this situation (if bought on behalf of the clients and without any markup) as disbursements, which would exempt them from VAT and not be counted towards the VAT registration threshold.

Some info from HMRC here:

http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm