Not Really Money Saving - Really A Gripe

oompahloompah

Hi everyone
I just wondered if anyone else was experiencing our latest problem? We are finding more and more of our customers (mainly charities and public funded bodies) are requesting they "don't pay VAT" since they're not VAT registered, and therefore can't claim it back. Up to now we've been trying to accommodate this by, for example, if our quoted price is £1000 plus VAT, they say "that's out of our budget, can we avoid the VAT...?", we charge them £1000 including VAT so we would get £833.33 and the rest would go to Mr Osbourne & Co.
It used to be an occasional thing, and while it irked we did it anyway to get the business in a "half a loaf is better than none" way. However, it is happening more and more often and we're finding it really difficult. Times are very tough as it is and our margins are stripped to the bone (as they are for many businesses these days). We've had a very reputable charity offer to pay us several thousand pounds in cash (which we refused!) so that they could save the VAT (our answer to this problem was to allow them to pay in monthly instalments, which split their outgoings over 2 financial years).
Is this a problem for anyone else? How do you deal (politely!) with such requests?
Thanks!
Oompah x

Mistral001

If you sell goods and you are VAT registered you must pay the VAT on those goods to HMRC whether you "charge" the customer or not.. To not do that is VAT fraud.

What I assume the OP means is that they reduce the price so that when the VAT is added the cost of the goods to customer is the same as without VAT and then the VAT is then sent to the tax man just the same. eg. £10 goods excl VAT which is £12 incl. VAT is charged at £8.33 + £1.67 VAT @20% = £10. the £1.67 is given to HMRC.

When firms advertise goods VAT free that is what they are doing. VAT is still charged on the goods.

oompahloompah

Mistral001 wrote: »

If you sell goods and you are VAT registered you must pay the VAT on those goods to HMRC whether you "charge" the customer or not.. To not do that is VAT fraud.

What I assume the OP means is that they reduce the price so that when the VAT is added the cost of the goods to customer is the same as without VAT and then the VAT is then sent to the tax man just the same. eg. £10 goods excl VAT which is £12 incl. VAT is charged at £8.33 + £1.67 VAT @20% = £10. the £1.67 is given to HMRC.

When firms advertise goods VAT free that is what they are doing. VAT is still charged on the goods.

Thanks for your reply, and sorry if I wasn't clear - yes this is what we have done, we charged the customer e.g. £1000 including VAT (and not plus VAT as originally quoted), have £833.33 for us and the rest to HMRC.

I know it is VAT fraud to not pay the VAT, which is why we always pay the VAT, even if it costs us in profit.

My post was wondering whether this is becoming more common amongst other businesses (or if we are just unlucky) and if so, how do they deal with the customers making such requests.

Thank you.

phill99

You have made a rod for your own back! People know that you are accommodating and are simply trying it on.

You need to be firm and respectfully suggest to them that unfortunately there is nothing you can do about it.

I can guarantee that Tesco, B & Q, Sainsburys, Matalan, etc etc wouldn't do this. You are effectively dropping your prices by the VAT amount which for a small business, where can flow is critical, it is a very large amount.

You need to stop doing this with immediate effect.

And if a charity is offering you cash to take the vat off, you need to report them to the charity commission.

Savvy_Sue

I work for a charity, and we never ask THAT question, although we do often ask if there's a charity discount.

I am never offended if the answer is 'no, sorry, we are already doing our best for you and that is a very good price.'

It might help if you quoted VAT inclusive prices when you know the organisation is NOT registered, but you do need to check this each time? I know we've got to pay it, I know we can't claim it back, so telling me what I've got to pay is better than giving me one price and then adding the VAT when I'm not expecting it. I know, I know, I should ask ...

Haarlem

There are a few goods and services where the VAT rate is zero.
Some guidance here:-
http://www.hmrc.gov.uk/charities/vat/purchases.htm

Savvy_Sue

Ah yes, had forgotten that! If you have inadvertently paid it when you shouldn't have done, it should be possible to reclaim it.

oompahloompah

Thanks everyone for your replies.

We are finding more and more of our customers are doing it, it's not the same ones over and over again, which is worrying! We always say the price will be e.g. "£1000 plus VAT at 20% so £1200 total" - because we are a small business it is possible we wouldn't be VAT registered so we like to make sure our customers know that we are and that we NEED to charge it. (I actually had a full scale argument with someone in the Education Department of a Council just last week who insisted they didn't need to pay VAT because they were "in Education" - but that's a whole other issue and not really what I was asking about.)
We're not one of the exemptions listed (thanks Haarlem!).
I agree, we need to be firm and just hope that their budgets can stretch, it is unsustainable otherwise. Our prices are very competitive (and we do offer a very healthy charity discount ) already so there is little if any wriggle room.
Thanks everyone!
Oompah x

Savvy_Sue

Of course, you could be less 'up front' about the charity discount so that you've got some wiggle room if asked.

ntb1

We just ask if they can provide us with their vat exemption certificate. If they have one then cool if not we add the vat. Some of our products can be exempt so not an issue.

Wywth

oompahloompah wrote: »

Hi everyone
I just wondered if anyone else was experiencing our latest problem? We are finding more and more of our customers (mainly charities and public funded bodies) are requesting they "don't pay VAT" since they're not VAT registered, and therefore can't claim it back. Up to now we've been trying to accommodate this by, for example, if our quoted price is £1000 plus VAT, they say "that's out of our budget, can we avoid the VAT...?", we charge them £1000 including VAT so we would get £833.33 and the rest would go to Mr Osbourne & Co.
It used to be an occasional thing, and while it irked we did it anyway to get the business in a "half a loaf is better than none" way. However, it is happening more and more often and we're finding it really difficult. Times are very tough as it is and our margins are stripped to the bone (as they are for many businesses these days). We've had a very reputable charity offer to pay us several thousand pounds in cash (which we refused!) so that they could save the VAT (our answer to this problem was to allow them to pay in monthly instalments, which split their outgoings over 2 financial years).
Is this a problem for anyone else? How do you deal (politely!) with such requests?
Thanks!
Oompah x

I can't say I've come across anyone particularly using the excuse "not VAT registered, and therefore can't claim it back". Nor have I come across such requests to 'knock off the VAT' from charities and public funded bodies.

Of course, times are tough, and like almost everyone else, we are feeling the pinch. There certainly does appear to be an increase in those looking to negotiate the price down rather than just accepting the first price we offer.

"Can you knock off the VAT?" is a question sometimes asked by a private punter, and whilst some actually are suggesting illegal acts, I think most are just looking for a discount. I have a feeling, they would probably be the first to report any VAT registered company that failed to provide them with a fully compliant VAT invoice/receipt.

If you are particularly bothered by those enticing you to act illegally, you could do what some shops do, and put up a sign explaining you cannot 'just knock off the VAT' as you are legally liable to HMRC to collect it on their behalf.

Regarding requests for a discount, well that is a matter for you to decide upon. Whilst negotiation is the key to good customer relations, and I am sure any customer gaining a discount will think positively of you, ultimately you set the selling price and if the customer can't afford it, then the customer can't afford it.
Try working with such customer to reduce the cost, whilst not affecting your margins.