When to charge VAT on services

[Tipzy]

Hi,

I am currently running a business where we charge a % commission fee to landlords based on the rental fee of property rented to our clients.

If we charge a 10% fee how would we charge the following client based on a 4 month rental agreement:

Client 1:

Charges £1000 per month exc VAT for rental
Total cost exc VAT: £4000
Total cost inc VAT: £4800

The landlord receives the rental income directly and we invoice them separately for our services.

My questions:

1) Are we entitled to charge our 10% from the total inc VAT? so £480 in the example's case.

2) Can you charge VAT on top of the % commission fee, or is this rarely done?


Thank you for taking your time to read and respond to this, it is greatly appreciated.

 

[Scalloway]

You charge your commission as a percentage of the net rent plus VAT on your charge.

 

[Newchodge]

Are you VAT registered?

 

[Tipzy]

Are you VAT registered?

Hi Newchodge,

Our ltd company is not VAT registered, however this is something I feel we should do since we are charging clients and there is a good chance we will hit the threshold this financial year. I would rather charge now, rather than lose the money.

You charge your commission as a percentage of the net rent plus VAT on your charge.

Hi Scalloway,

So it would be £480 from the example provided?

Thanks!

 

[Newchodge]

You cannot charge any VAT unless you are VAT registered.

 

[Tipzy]

You cannot charge any VAT unless you are VAT registered.

If I register for VAT today and receive my details within 3 weeks am I able to backdate VAT payments, or do I simply lose the VAT on the previous deals?

Thanks,

 

[Anna Chandley]

You need to charge VAT from the date that you are registered for VAT even if you haven't received your VAT number. You cannot show the VAT as a separate amount on any invoice unless you have your VAT registration number so normally you would issue an invoice for the gross amount including VAT and then reissue a proper VAT invoice once you have the registration number.

 

[Scalloway]

So it would be £480 from the example provided?

If your client is VAT registered I would say £400 as the rent for them will be £4,000.

 

[Tipzy]

You need to charge VAT from the date that you are registered for VAT even if you haven't received your VAT number. You cannot show the VAT as a separate amount on any invoice unless you have your VAT registration number so normally you would issue an invoice for the gross amount including VAT and then reissue a proper VAT invoice once you have the registration number.

This makes sense, can anyone else confirm?

If your client is VAT registered I would say £400 as the rent for them will be £4,000.

Since they charge the total rental income as well as VAT, they would have a surplus VAT amount once our % fee is taken? i.e. They take £4800 inc VAT and we charge £400, they would have £800 for VAT when they only have £3600 left from the original rental amount.

Thanks for your ongoing input, it's greatly appreciated.

 

[Newchodge]

The VAT that they charge is not theirs to keep - they are collecting it in order to pay it to HMRC.

If you are considering VAT registration you probably ought to do a bit of research on what VAT is.

 

[Scalloway]

You need to charge VAT from the date that you are registered for VAT even if you haven't received your VAT number. You cannot show the VAT as a separate amount on any invoice unless you have your VAT registration number so normally you would issue an invoice for the gross amount including VAT and then reissue a proper VAT invoice once you have the registration number.

That is how it works

 

[Tipzy]

The VAT that they charge is not theirs to keep - they are collecting it in order to pay it to HMRC.

If you are considering VAT registration you probably ought to do a bit of research on what VAT is.

Thanks Newchodge.

Yes, I am aware what VAT is, however there is some confusion. Landlord receives £4000 exc VAT; for example let's say we take a 10% fee £400 exc VAT, we will be required to pay VAT on this, £80 to be exact. The landlord receives VAT on the £4000 rent (£800) and does not pass on the 10% of VAT, so they have a surplus amount of VAT left.

Do HMRC see this as the landlord received £4800 inc VAT so they want the full £800 from the landlord? If so, will I be expected to find a way to absorb VAT in my fees?

That is how it works

Thanks Scalloway.

 

[john1989]

If the landlord charges £4000 plus £800 VAT, the VAT isn’t the landlords. Simplified, £800 goes straight to HMRC. It was never the landlords, they are just an unpaid tax collector.


You would charge your 10% on the £4000, which would be £400. If you are VAT registered, it would be £400 + £80 VAT. The £80, just like the landlords position, isn’t yours. You hand that over to HMRC.


So in the above scenario, the landlords VAT return would be:


VAT on sales £800

VAT on purchases £80

Total payable to HMRC £720

 

[Newchodge]

You charge a fee of 10% of £4,000 - £400. if you are VAT registered you charge £80 VAT which you pass to HMRC.

The landlord charges £4,000 of which £3,600 is 'profit'. He also charges £800 VAT and pays you £80 VAT, leaving £720 for him to pay to HMRC.

Edit: John beat me to it by a split second

 

[Tipzy]

If the landlord charges £4000 plus £800 VAT, the VAT isn’t the landlords. Simplified, £800 goes straight to HMRC. It was never the landlords, they are just an unpaid tax collector.


You would charge your 10% on the £4000, which would be £400. If you are VAT registered, it would be £400 + £80 VAT. The £80, just like the landlords position, isn’t yours. You hand that over to HMRC.


So in the above scenario, the landlords VAT return would be:


VAT on sales £800

VAT on purchases £80

Total payable to HMRC £720

John, this makes pure sense.

So to confirm, I am able to charge the VAT on the 10% fee? When VAT registered of course. The landlord would claim the VAT back on purchases?

 

[john1989]

You charge your commission based on the landlords rent excluding VAT.

You can only charge VAT once you are VAT registered.

Yes the landlord can reclaim the VAT back on purchases if they are also VAT registered.

 

[Tipzy]

You charge your commission based on the landlords rent excluding VAT.

You can only charge VAT once you are VAT registered.

Yes the landlord can reclaim the VAT back on purchases if they are also VAT registered.

Sorry I was not clear.

I understand the 10% is charged on the rental income exc VAT, however am I expected to add VAT on top of my 10%? Is this standard procedure for companies charging fees?

 

[Newchodge]

If you are VAT registered you MUST charge VAT at the appropriate rate. If you are not VAT registered you CANNOT charge VAT.

 

[john1989]

Yes, if you are VAT registered you would add VAT to the £400 making it £480.

If you were not VAT registered the landlord would pay you £400.
If you are VAT registered, the landlord would pay you £480 but can recover the £80 if they are VAT registered, resulting in the same cost to them of £400

 

[Tipzy]

Thank you, just ensuring the VAT system works the same for services.

All your help is greatly appreciated!