Non VAT Registered Garage

Horizon81

A mechanic has recently opened for business near me and comes well recommended - he's an ex main dealer mechanic now going solo, got a small lock up on outskirts of town. Thing is, he's not VAT registered...
From googling, the only problem I can see is that it would void any warranty claim via an aftermarket company (e.g. warranties direct), however this wouldn't affect me. My car is out of it's manufacturers warranty as well so that wouldn't pose a problem.

Are there any other pitfalls of using a non VAT registered garage?

spadoosh

Im sure the garage would be registered for VAT if it was applicable to be so. Only if a company has a turnover of £70000 (could be wrong but its around that) do they have to register for VAT. And seeing as he has fairly recently set up he will defo not have a £70k turnover

LandyAndy

It shouldn't be a problem. He'd be well advised to register though (You can register voluntarily even if you haven't passed the turnover threshold) even though there is a bit more paperwork involved.

vaio

Can't see any problem, he'll just pass the VAT on parts on to his customers but won’t have to charge VAT on labour so should be the thick end of 20% cheaper than a VAT registered garage.

I can’t see why he would even consider registering voluntarily if his customer base is predominantly the general public rather than other VAT registered businesses, all it will do is push his costs up as far as customers are concerned

Hammyman

Why should someone register for VAT to become in effect an unpaid tax collector for HMRC? As vaio says, all it means is he has to put his labour charges up 20% to his non-business customers.

Horizon81

Thanks. I don't doubt the guy's abilities, I was more worried about any comebacks.

Vaio, when it comes to parts, have I understood you right... If a garage is VAT registered then when they order parts from their supplier, they don't pay VAT on them? But they still charge the customer VAT.
When a garage isn't VAT registered, they do pay VAT on parts from their supplier. And they pass this onto the customer.
So whether the garage is VAT registered or not, the customer pays the same price for the parts.
Obviously the labour charge should be 20% less than if the guy was VAT registered.

spadoosh

They do pay VAT on parts and the final customer pays VAT and the garage would offset this against any purchases and then deliver a nice sum to the tax man, a business should not make money on VAT. They charge it (all of which goes to tax man) and claim back anything they have paid in VAT

vaio

Consider a clutch job with parts cost to the garage of £100 plus vat and a labour charge of £200

Non registered garage will have to pay £100 plus vat = £120 for the parts, add on the labour and you get a total bill of £320

Registered garage will pay £100 for parts, add on the labour = £300 plus VAT on the whole bill so you end up paying £360

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Horizon81

vaio wrote: »

Consider a clutch job with parts cost to the garage of £100 plus vat and a labour charge of £200

Non registered garage will have to pay £100 plus vat = £120 for the parts, add on the labour and you get a total bill of £320

Registered garage will pay £100 for parts, add on the labour = £300 plus VAT on the whole bill so you end up paying £360

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It's only taken me the best part of 2 years to come back to this post but better late than never. In my experience, Vaio's example above is wrong around the parts prices.

Registered garage will charge customer £120 for parts, add on labour (£200) plus VAT on the whole bill so you end up paying £384.

The key point is that the garage will claim the VAT back on the part (essentially making a mark up). If a garage pays £100 + £20 VAT (£120 total) to their supplier, then they charge £120 +VAT to the customer.

neilmcl

Horizon81 wrote: »

The key point is that the garage will claim the VAT back on the part (essentially making a mark up). If a garage pays £100 + £20 VAT (£120 total) to their supplier, then they charge £120 +VAT to the customer.

You missed the bit about the garage having to pay the VAT on their sales, therefore I don't see what this "making a mark up" you talk about is coming from?

Horizon81

neilmcl wrote: »

You missed the bit about the garage having to pay the VAT on their sales, therefore I don't see what this "making a mark up" you talk about is coming from?

The garage pay £120 for the part (£100 + £20 VAT) but claim the £20 back so it's essentially a mark up/profit for them. They sell the part to the customer for £120 + VAT (£144).

In Vaios example above he was making out like the garage charges the customer £100 + VAT (£120) for the part.