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Pro Forma Invoice / help needed
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# 1
spitfire13
Old 31-03-2011, 2:45 PM
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Default Pro Forma Invoice / help needed

Hi Everyone on this forum, i need a little bit of help with my latest building project

Basically, im a builder who hasn't worked for 8 months due to a car accident, this means iv not earned in that time. Iv recently quoted a big renovation job in which the insurance company has agreed to pay out for my quote.

Im not Vat registered and like to keep under the 70.000 threshold, trouble is that the job is close to that amount.

Iv asked the house owner to ask the insurance company to pay him the money in stages as i do the work, they say they need a proforma invoice from the builder to the homeowner then send it on to them.

As iv never done a pro forma invoice can anyone help me and does it have any tax implications? does it matter that the insurance company dont know im not vat reg?

Thanks everybody your help is appreciated

Last edited by spitfire13; 31-03-2011 at 2:47 PM. Reason: mistake
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# 2
paddyrg
Old 31-03-2011, 5:05 PM
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Personally, I would consider registering for VAT and keep it simple. It is free, and whilst you will have to charge VAT, you will also reclaim it on materials/tools etc. And it means you can get another job this year without worrying about the threshold.

Anyway, a proforma means "for form", and is very similar to a quote in practical terms to get the ball rolling. You would still need to submit real invoices to get paid.
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# 3
paulwf
Old 31-03-2011, 7:45 PM
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As it is a fairly major step it would be worth having a chat with your accountant (or get one) asap. Chances are there might be other ways they can reduce your tax bill too!
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# 4
Pennywise
Old 31-03-2011, 8:25 PM
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The insurance co have already agreed your quote - they're unlikely to accept you adding VAT to it as they're not VAT registered so it's an additional 20% cost to them. Probably best to forget about VAT registration if you don't want to risk losing the insurance job (but you could always ask them!).

As for a pro-forma, it's just the same layout as a normal invoice, but instead of saying "invoice" at the top, change it to "pro forma". Also make it clear whether it's an estimated amount, or a fixed amount, and include any options you want for extras etc to cover yourself if the job changes.
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# 5
JasonLVC
Old 31-03-2011, 9:00 PM
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The VAT threshold is 73,000 from April 2011.

That 73k is based on your turnover on a 12 month rolling period so if you take March 2011 as the start point you go back to March 2010 and if your turnover exceeds the threshold you need to register for VAT mandatory.

I assume the idea of a pro-forma is to space your turnover so that you drip feed your turnover into that 12 month rolling period so you can ensure whatever pro-forma you raise comes unde the 73k in any 12 month period.

A pro-forma is basically a request for payment and doesn't create a VAT tax point until the payment is received into your bank account so raising a pro-forma in say April but defers payment to when the customer pays which could be in May and therefore you look at May 2011 back to May 2010 to see if you've gone over the VAT threshold.

The insurance company will have no problem with you not being VATregistered, less money for the insurer to have to pay out.

That is all probably a bit too much ay 9.00 at night, so just to clarify, was the above what you were hoping to achieve by using pro-formas or was there anothe reason why you want to raise pro-forma invoices, instead of normal ones.
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# 6
spitfire13
Old 01-04-2011, 12:34 PM
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Thanks for the replies guys!

iv taken note of all the comments, but a few things need clearing up, As pennywise says "they're unlikely to accept you adding VAT to it as they're not VAT registered so it's an additional 20% cost to them". are you saying the insurance company isnt vat registered?

I dont want to go down the line of vat reg as i dont have anymore work ahead of me.

Iv said to the homeowner to ask for the money from insurance to actually pay him then he will in turn pay me so the contract is with him rather than the insurance company, this is where the insurance has said they would need a proforma to do that.

If the insurance pay the cheques to the homeowner/my customer then can i as a builder ask for the money in part cash part cheque and have no tax implecations later with the insurance?

I did the quote for the homeowner so as i see it my contract is with him, the insurance wanted my quotation breaking down for them to look and and they have accepted, therefore does anyone see this like me and beleive that after the proforma has been received by the insurance they will pay the homeowner?

Sorry if it a bit long winded but look forward to hearing your comments.
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# 7
martindow
Old 01-04-2011, 12:57 PM
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The insurance company will nor care whether they pay you 70 thousand pounds or 70 thousand plus VAT as they will be VAT registered.

If you register you will be able to reclaim VAT on materials for this job which would be better for you. The problem is that if your future work is likely to be with private individuals you will have to charge VAT on their invoices which would make you more expensive.
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# 8
spitfire13
Old 01-04-2011, 1:05 PM
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Quote:
Originally Posted by martindow View Post
The insurance company will nor care whether they pay you 70 thousand pounds or 70 thousand plus VAT as they will be VAT registered.

If you register you will be able to reclaim VAT on materials for this job which would be better for you. The problem is that if your future work is likely to be with private individuals you will have to charge VAT on their invoices which would make you more expensive.
Thanks, i know what the threshold for vat and how it works but im not really wanting advise on if i should or shouldnt because i know at this time its not for me.

Its the whole payment plan and how it works that im trying to get to the bottom of.
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# 9
Dangermac
Old 01-04-2011, 1:18 PM
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Quote:
Originally Posted by martindow View Post
The insurance company will nor care whether they pay you 70 thousand pounds or 70 thousand plus VAT as they will be VAT registered.

.

Not true. Insurers dont generally sell products that attract VAT so are therefore, to my knowledge, are not VAT registered.
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# 10
Pennywise
Old 01-04-2011, 1:33 PM
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Quote:
Originally Posted by martindow View Post
The insurance company will nor care whether they pay you 70 thousand pounds or 70 thousand plus VAT as they will be VAT registered.
No, they're not usually VAT registered because insurance is outside the scope of VAT.
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# 11
JasonLVC
Old 01-04-2011, 4:16 PM
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Quote:
Originally Posted by spitfire13 View Post
If the insurance pay the cheques to the homeowner/my customer then can i as a builder ask for the money in part cash part cheque and have no tax implecations later with the insurance?
Your contract is clearly with the home owner. The home owner needs to get his insurance claim approved and to do this, the insurers naturally want to ensure the homeowner has obtained quotes/best value, etc hence why the insurers are asking for your quote.

There are no tax implications with the insurer as you have no contract with them (unless they insist on paying you direct).

You originally asked about pro-forma invoices - pro-forma invoices are still invoices they are just a way of getting paid before doing the work, the insurers isn't going to pay 60k out to a homeowners on his say so, they want to see either an invoice (which means a supply has already been provided to the customer) or a pro-forma invoice which is the same as an invoice but where the supply has not yet been provided/made.

What I don't understand is why you want payment in part cash/part cheque - other than to not declare the cash element as your income for tax purposes. Does it matter what format the payment is made provided it is made and you get paid what you are due?
Everyone is a genius. But if you judge a fish on its ability to climb a tree, it will live its whole life believing that it is stupid (A. Einstein)
"There is a wonderful mythical law of nature that the three things we crave most in life -- happiness, freedom, and peace of mind -- are always attained by giving them to someone else."

Last edited by JasonLVC; 01-04-2011 at 4:19 PM.
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# 12
paddyrg
Old 01-04-2011, 5:55 PM
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The Royal Bank of Scotland plc ("RBS") trading as 'Direct Line' Registered VAT No: GB 243852752


List of Aviva company details VAT Number 105 4373 00


There's two, at least, and big ones at that. It is *VERY* likely they will be VAT registered - just becaise they don't charge VAT on their products doesn't mean they suffer VAT on supplier costs etc.



I understand you don't want to register for VAT, but is seems a bit daft to me as it would totally work in your favour on this job.
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