Does VAT apply to labour costs?

suroben · 18 April 2005 at 4:18PM

My son's friend started a small business 2 years ago and has since taken on 2 staff. He has been paying his taxes etc and watching his turnover for the inevitable arrival of VAT payments becoming due. He thought the liability was on his costs for materials etc. but someone has told him that his labour charges are included in the VAT liability. If that is correct he could be in big trouble as he was going to register for VAT soon but if he should have included labour he is way past the time he should have registered. I have tried to find out but can't make any sense of the information I've found as nobody seems to mention labour charges anywhere.
Any advice or hints on where to tell him to look would be useful as he wants to find out his liability and try to sort out a solution before going to the VAT people and maybe getting a massive fine which would put his business at risk.

manhattan · 18 April 2005 at 5:09PM

as far as i know, yes! vat should be added even to labour charges.

shrek101 · 18 April 2005 at 6:38PM

As far as I am awars it is, because when you get a builder, plumber in they add VAT on the bill which isnt just for parts.

http://www.harbinson-mulholland.com/content/forums_vat/vatintro.html

"VAT law covers all types of supply of goods or services (outputs), whether of a revenue or capital nature. Supplies include sale, hire, or loan of goods. Output normally falls into four categories:"

polarbearit · 18 April 2005 at 8:29PM

Yes, VAT is indeed charged on Labour. Its a !!!!!! really because I bet he can't go back to his previous customers and ask for the VAT now!

VeryTrying_2 · 18 April 2005 at 8:34PM

suroben wrote:

He has been paying his taxes etc and watching his turnover for the inevitable arrival of VAT payments becoming due.

You said it yourself .... he seems to have been aware that turnover triggers VAT payments. It doesn't matter about costs of materials, labour costs or anything else, so it's not surprising you can't find anything about labour charges. It's the outputs (sales) that matter.

I think he ought to get in touch with the VAT people as quickly as possible and explain his (apparent?) confusion.

suroben · 18 April 2005 at 9:28PM

Thanks for the advice, I'll pass it on to him. I had already told him I thought it was the total bill that was relevant and not just the materials. Seems a shame that what he thought were a couple of good jobs at the end of the year could well have put him in the bad books of the VATman.

I'll never know how a small businessman works out in advance if he will be liable to VAT or not but fortunately it's not my problem.

WHA · 19 April 2005 at 10:24AM

suroben wrote:

I'll never know how a small businessman works out in advance if he will be liable to VAT or not but fortunately it's not my problem.

He/she doesn't need to "know in advance". It depends on the total turnover for each preceeding period of twelve months - the last twelve months should be added as each month passes - when the turnover reaches the limit, the business has a month in which to register, and then must charge VAT from the following month.

Does VAT apply to labour costs?

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free