VAT Query

Lifeisbutadream

Just a quick question - any suggestions would be gratefully received.

I am expecting VAT to go up next week - now although I had thought this would happen I havent really thought through what we would do about it.

We are booked up with work until October - some of the work is to businesses and so the VAT rise will not affect them, but some of it is to private customers - one of the jobs is for £32K - the prices have all been agreed already.

I need to consider my options - obviously I dont know anything yet, but would like to start thinking about what I can do beforehand in order to prepare.

Any suggestions?

DCodd

Lifeisbutadream wrote: »

Just a quick question - any suggestions would be gratefully received.

I am expecting VAT to go up next week - now although I had thought this would happen I havent really thought through what we would do about it.

We are booked up with work until October - some of the work is to businesses and so the VAT rise will not affect them, but some of it is to private customers - one of the jobs is for £32K - the prices have all been agreed already.

I need to consider my options - obviously I dont know anything yet, but would like to start thinking about what I can do beforehand in order to prepare.

Any suggestions?

As I said in the previous thread, if you agreed £32k exclusive of VAT then you are ok but if you just agreed a figure of £32k with a private individual then you can ask if they would accept VAT on top but I strongly suspect that would hold you to your original £32k figure or just look elsewhere for a cheaper quote.

In any case, it is courteous to tell all your clients, private or business, that you will becoming VAT registered. You may not get your VAT number in time either and so you may have to invoice for the VAT retrospectively, so best to warn all.

Lifeisbutadream

DCodd wrote: »

As I said in the previous thread, if you agreed £32k exclusive of VAT then you are ok but if you just agreed a figure of £32k with a private individual then you can ask if they would accept VAT on top but I strongly suspect that would hold you to your original £32k figure or just look elsewhere for a cheaper quote.

In any case, it is courteous to tell all your clients, private or business, that you will becoming VAT registered. You may not get your VAT number in time either and so you may have to invoice for the VAT retrospectively, so best to warn all.

I am VAT registered - I was just thinking ahead for if the VAT rises.

The £32K has been quoted at £32K inclusive of VAT - we wouold not be able to do it at that, as some of the work is to be subcontraced out to non VAT suppliers, so has been quoted at their cost +VAT so would actually cost us money if the VAT rate goes up.

I know that one of my options is to pull out and say that we cant do it at that price and another would be for the subbies to invoice the customer directly (although I dont want to do that as the service we offer is one of an 'umbrella' to save the customer time) - I just wondered whether anyone had any other suggestions.

I know that I am jumping the gun anyway, but I just wanted to be ready.

DCodd

Lifeisbutadream wrote: »

I am VAT registered - I was just thinking ahead for if the VAT rises.

The £32K has been quoted at £32K inclusive of VAT - we wouold not be able to do it at that, as some of the work is to be subcontraced out to non VAT suppliers, so has been quoted at their cost +VAT so would actually cost us money if the VAT rate goes up.

I know that one of my options is to pull out and say that we cant do it at that price and another would be for the subbies to invoice the customer directly (although I dont want to do that as the service we offer is one of an 'umbrella' to save the customer time) - I just wondered whether anyone had any other suggestions.

I know that I am jumping the gun anyway, but I just wanted to be ready.

Ahh I see, my appologies,

If the VAT rate goes up then your quote goes up too, it would be naive to for your clients to think that a VAT rate increase would not affect their quote. I would include on your quotes "VAT at 17.5%" for both Business and Private clients if you don't already, then there is no doubt that if the rate rises to 20% the quote has to be amended accordingly.

If you are the most competitive price at the moment, which i am assuming you are as you have won the order, then you still will be if the rate goes up as it will affect your competitors quotes too?

Lifeisbutadream

DCodd wrote: »

Ahh I see, my appologies,

If the VAT rate goes up then your quote goes up too, it would be naive to for your clients to think that a VAT rate increase would not affect their quote. I would include on your quotes "VAT at 17.5%" for both Business and Private clients if you don't already, then there is no doubt that if the rate rises to 20% the quote has to be amended accordingly.

If you are the most competitive price at the moment, which i am assuming you are as you have won the order, then you still will be if the rate goes up as it will affect your competitors quotes too?

My usual quotes include the words 'VAT at 17.5%' and a breakdown of the VAT, but we have just started a new business which is mainly to landlords and I have done new quotes, which just show the total amount, no mention of VAT - there are only about 4 quotes and I can work around it, but hopefully the customers will accept the increase - anyway will wait and see what happens next week!

JasonLVC

Hiya,

How'd the other (HMRC) matter go Lifeis....? I assume all was well. PM if you wish.

If the quote was £32k including VAT then you've certainly locked yourself into charging not a penny more than £32k.

But seeing as this is a quote, not a contract, then you could always pull out of the job altogether or ask to re-quote in light of the VAT change (but I guess the customer will resist anything you do that equals an increased cost, 'cos I would). On saying that, you could still ask the customer becuase nothing ventured, nothing gained and some customers may be happy to pay the extra, even if they don't have to.

If you deal mainly with consumers (not other businesses), it is a good habit to always quote "plus VAT" thus giving you the wriggle room to charge more on the basis of VAT going up in the future. Still, hindsight is such a wonderful thing none of us possess.;)

When was the job scheduled to start?. You may be able to invoice the works already done under the 'old' VAT rate which may mitigate your loss overall on the job (ie, if started already but due to finish October you can part invoice the works at the lower rate to reduce your liability). If all the works start onsite in October all of it will be subject to the new VAT rate.

If the job was for £32k all in, then that means the price you quoted was £27,238 for you plus the £4,765 VAT that goes to Mr Taxman.

If VAT goes upto 20%, then £27,238 x 20% = £5,447 a difference of £682 now I'm not saying that is irrelevant, more, this is the true cost to the business should VAT go up. If you're going to not make any money on the job at all, then don't do it. If the £682 extra cost still leaves you with a bit of profit then do the job to keep faith/reputation but don't grumble if you made less profit thasn usual.

Lifeisbutadream

JasonLVC wrote: »

Hiya,

How'd the other (HMRC) matter go Lifeis....? I assume all was well. PM if you wish.

If the quote was £32k including VAT then you've certainly locked yourself into charging not a penny more than £32k.

But seeing as this is a quote, not a contract, then you could always pull out of the job altogether or ask to re-quote in light of the VAT change (but I guess the customer will resist anything you do that equals an increased cost, 'cos I would). On saying that, you could still ask the customer becuase nothing ventured, nothing gained and some customers may be happy to pay the extra, even if they don't have to.

If you deal mainly with consumers (not other businesses), it is a good habit to always quote "plus VAT" thus giving you the wriggle room to charge more on the basis of VAT going up in the future. Still, hindsight is such a wonderful thing none of us possess.;)

When was the job scheduled to start?. You may be able to invoice the works already done under the 'old' VAT rate which may mitigate your loss overall on the job (ie, if started already but due to finish October you can part invoice the works at the lower rate to reduce your liability). If all the works start onsite in October all of it will be subject to the new VAT rate.

If the job was for £32k all in, then that means the price you quoted was £27,238 for you plus the £4,765 VAT that goes to Mr Taxman.

If VAT goes upto 20%, then £27,238 x 20% = £5,447 a difference of £682 now I'm not saying that is irrelevant, more, this is the true cost to the business should VAT go up. If you're going to not make any money on the job at all, then don't do it. If the £682 extra cost still leaves you with a bit of profit then do the job to keep faith/reputation but don't grumble if you made less profit thasn usual.

Hi Jason - not heard a thing from HMRC as yet, but feeling much calmer now I have got everything into prespective - they can do what they like to me! I will certainly update you when I know more...

The quote is for a new business we have started - the job is due to take place over 5 weeks over July and August - I am cross with myself as usually I do a breakdown of VAT, but because most of the clients of the new business are not VAT registered, I didnt do it here.

I think I need to work out our profits - I think we could cover it, but with it being a new business we have kept profits quite low, but as we are working on our reputation, I think it is probably more important to keep the customer happy.

I think we may be able to come to an arrangement with some of the subbies to take a cut in their costs too.

DCodd

Lifeisbutadream wrote: »

My usual quotes include the words 'VAT at 17.5%' and a breakdown of the VAT, but we have just started a new business which is mainly to landlords and I have done new quotes, which just show the total amount, no mention of VAT - there are only about 4 quotes and I can work around it, but hopefully the customers will accept the increase - anyway will wait and see what happens next week!

Are they individual landlords or Managing Agents? Most Managing Agents are VAT registered and so a VAT increase will not affect them so much.

Sorry - posts crossed.

DCodd

Jason - could lifeisbutadream bill the new clients with VAT at the potentially higher rate and just accept payment of the £32k and claim some VAT bad debt relief on the outstanding amount? or is that a bit naughty?

JasonLVC

DCodd wrote: »

Jason - could lifeisbutadream bill the new clients with VAT at the potentially higher rate and just accept payment of the £32k and claim some VAT bad debt relief on the outstanding amount? or is that a bit naughty?

It's a bit naughty but nothing to stop you doing it (and importantly, little HMRC could do to attack it), so HMRC will be okay but Lifeis will still lose out on some VAT.

Bad Debt Relief can only be claimed 6 months after the debt becomes due so Lifeis would have to wait 6 months before claiming so much better is to switch to cash accounting and avoid bad debt relief altogether and just issue invoice with full VAT rate (say £1,000 + 20% VAT = £200 total of £1,200), under cash accounting rules if customer part pays, trader only pays part over to HMRC, the remaining amount remains uncollected by the trader and unpaid to HMRC (8.1 http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000348&propertyType=document#P353_35417)

As an aside, you talk of a 'new business'. Is this a new legal entity (ltd) or just a new income stream for the existing VAT registered entiy/business?

Lifeisbutadream

JasonLVC wrote: »

It's a bit naughty but nothing to stop you doing it (and importantly, little HMRC could do to attack it), so HMRC will be okay but Lifeis will still lose out on some VAT.

Bad Debt Relief can only be claimed 6 months after the debt becomes due so Lifeis would have to wait 6 months before claiming so much better is to switch to cash accounting and avoid bad debt relief altogether and just issue invoice with full VAT rate (say £1,000 + 20% VAT = £200 total of £1,200), under cash accounting rules if customer part pays, trader only pays part over to HMRC, the remaining amount remains uncollected by the trader and unpaid to HMRC (8.1 http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000348&propertyType=document#P353_35417)

As an aside, you talke of a 'new business'. Is this a new legal entity (ltd) or just a new income stream for the existing VAT registered entiy/business?

The new business is a Limited company - it is totally separate from our usual business and we run it along with two other directors