Letting Through an Agent: VAT on invoices

happywarmgun

To avoid any hassle I lease a flat through a letting agency fully managed.

Every month I get my statement of account showing what money I will receive (rent received minus management fees and other misc. expenditure).

My question is - assuming the letting agents are VAT registered, if they get a tradesman to do a job, I assume they then claim back the VAT. Is it right they then pass on the full value of the invoice to me? Should I really only be charged the net value of the job?

Or do they have to pass on the charge in full.

I don't know if I am being diddled or not.

real1314

They don't claim back the VAT - it's not related to an expense for their business. You pay the VAT.

But, you can't register for VAT as domestic rent is exempt from VAT. Sorry.

martindow

If the tradesman is VAT registered and charges 100 + VAT your agent will pay them 120. They would then invoice you 100 +VAT and you would pay them 120. The agent will set off the 20 you paid against the 20 pounds they paid so they are not diddling you as someone has to pay the VAT.

There would be more of a problem if the tradesman is not VAT registered as the agents are likely to still charge you 100 +VAT. They will pay the VAT to the government so will be no better off but you will pay another 20.

The best thing would be to tell the agents that you want to pay tradesman directly. This also has the advantage that you can be sure the agents are not adding extra to the invoices.

jjlandlord

martindow wrote: »

There would be more of a problem if the tradesman is not VAT registered as the agents are likely to still charge you 100 +VAT. They will pay the VAT to the government so will be no better off but you will pay another 20.

The only reason the agent would do that is not to pay HMRC but to keep.
That would be a tax fraud as it is illegal to charge non-existent VAT for profit.

Mallotum_X

If the workman billed the agent then they could claim back the vat, but then must charge you.

If they are paying on your behalf you cant claim back the vat.

Either way you pay the VAT.

BitterAndTwisted

I think you have misunderstood how the VAT system works: the end-user pays. You are the end-user of the tradesman's services.

googler

If the agent has paid the invoice on your behalf, then you should pay the full value of the invoice.

The agent is merely passing the cost on to you. It's not a case of them buying the tradesman's service as part of running their business, it's a case of them hiring the tradesman and paying him on your behalf.

happywarmgun

Thanks for the replies.

I get the point that the end user pays but it seems to me:

1) Tradesman charges 100 + VAT (20). He invoices letting agent and ultimatley will pay HRMC the 20 quid in his next VAT return.

2) Letting agent pays tradesman 100+VAT. However they have the invoice and so reclaims VAT as business expense (it was them who was invoiced). They will get 20 quid back when they do their next return (or at least pay HRMC 20 quid less).

3) End user (me in this case) gets copy of invoice and has the value knocked it my rental income (full 120).

In that scenario the 20 quid I paid seems to land with the letting agent not HRMC!

I guess it all depends whether the letting agent does actually claim back the VAT on invoices they have been sent where they intend to pass the charge on directly. If they don't, as real1324 suggests then it does all work out.

jjlandlord

happywarmgun wrote: »

1) Tradesman charges 100 + VAT (20). He invoices letting agent and ultimatley will pay HRMC the 20 quid in his next VAT return.

2) Letting agent pays tradesman 100+VAT. However they have the invoice and so reclaims VAT as business expense (it was them who was invoiced). They will get 20 quid back when they do their next return (or at least pay HRMC 20 quid less).

3) End user (me in this case) gets copy of invoice and has the value knocked it my rental income (full 120).

That would be fraud on the part of the agent.

What they must do (quoting HMRC):

If you make a payment on behalf of your customer, for goods or services received and used by your customer, you might be able to treat these payments as 'disbursements' for VAT purposes. If so, you don't charge VAT when you pass payments like these on to your customer, but you can't claim back any VAT on their cost either.

See http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm

BitterAndTwisted

It is much more straightforward from a bookkeeping point of view for the agent to charge VAT on disbursements and offset the VAT charged by the contractor from their reported sales.

A lot of professional firms like solicitors and surveyors charge disbursements at cost (£120) after they've calculated the VAT on their services.

Either way of charging is correct. If you appointed the contractor yourself the cost to you would still be £120