VAT Rebate for self employed through accountant

Mistral001

If you register for VAT and you work for private customers who will not be able to claim the VAT back, you will not be as competitive as you will have to charge VAT on your labour. You will howver be able to claim back the VAT charged to you on materials, so it depends on what percentage of your bills is labour and what is materials.

One other point is that if you are VAT registered as a small business, often you will be asked to knock off the VAT. This can become annoying to many small business people as what the customer is really asking for is a discount of 20% as the business still has to pay the VAT to HMRC.

Wywth

Mistral001 wrote: »

If you register for VAT and you work for private customers who will not be able to claim the VAT back, you will not be as competitive as you will have to charge VAT on your labour. You will howver be able to claim back the VAT charged to you on materials, so it depends on what percentage of your bills is labour and what is materials.

That doesn't make any difference.
If the OP opts for the flat rate scheme, then there is no possibiliity to reclaim VAT (as it's allowed for in the reduced rate of VAT payable to HMRC)

If the OP wished to go to the bother of full VAT accounting:
Non VAT registered builder
Buys goods at a cost of £100 plus VAT = £120
This is presumably passed on in full to the client
i.e. builder charges customer £120 for goods supplied.


VAT registered builder.
Buys goods at cost of £100 plus VAT = £120
Cost to builder is £100 as £20 is reclaimed as input tax
Again, assuming cost is passed onto client in full
Builder charges client £100 plus VAT = £120
Builder is required to pay HMRC VAT of £20 on goods supplied,

Mistral001 wrote: »

One other point is that if you are VAT registered as a small business, often you will be asked to knock off the VAT. This can become annoying to many small business people as what the customer is really asking for is a discount of 20% as the business still has to pay the VAT to HMRC.

Knocking off the VAT is not legal

As a customer, I would seek a discount whether the builder was VAT registered or not.

Suarez

I think they meant absorb the VAT rather then knock it off..

Mistral001

Wywth

Labour costs? Labour can be the majority of the costs in some building projects such as restoration. This is originated by the builder and is not just something that is passed on.

Thus in deciding to register for VAT, full or flat rate, how labour-intensive the type of building projects that the OP does needs to be taken into account in their calculations.

Mistral001

Suarez wrote: »

I think they meant absorb the VAT rather then knock it off..

Yes we all mean that here, but actually through ignorance or otherwise often customers do not.

I am not a builder but know some people who get very angry when they get charged VAT on a bill from a small builder. They can understand that the VAT for materials have to be passed on, but find it difficult to understand the VAT on the labour. Often they have previously dealt with handymen for small building projects who do not charge VAT on labour because they are not VAT registered and expect the same from everybody that does small building projects for them. Their attitude is why should I have to pay extra when Willy down the road did not charge VAT on his labour for doing almost the same job. This is against my Human Rights etc. Maybe next time they will go to Willy!

warwicktiger

Mistral001 wrote: »

Wywth

Labour costs? Labour can be the majority of the costs in some building projects such as restoration. This is originated by the builder and is not just something that is passed on.

Thus in deciding to register for VAT, full or flat rate, how labour-intensive the type of building projects that the OP does needs to be taken into account in their calculations.

Exactly, to achieve the same level of income or profit you will have to raise your prices to Joe Public, which is ok if you can get away with it, but the unregistered plumber in the next street could always undercut your quotes.

wullie-eng

JasonLVC wrote: »

The scheme OP has been offered I think will work like this :-

The flat rate scheme sees you register for VAT but you cannot reclaim VAT on purchases. However, you don't pay over all the VAT you charge the customer to HMRC. You pay a % based on your trade sector.

Example. You sell these damn taps again for £20 + £4 VAT (£24). Ordinarily you then pay HMRC £4.00 and you keep the £20 you charged originally.

Under flat rate scheme, general building/construction services is 9.5%. This means you pay HMRC 9.5% of the total invoice/sale so would be £24 x 9.5% = £2.28 so ordinary scheme you pay over £4.00 but on flat rate you pay over £2.28 but your customer has still paid you £20 + £4 VAT so you get to keep the extra VAT. You cannot reclaim any VAT on purchases so the tap cost £10 + £2 VAT (£12) so your cost of sale would be :-

Purchase £12, sold tap for £20 + £4 VAT (£24). Pay over £2.28 and keep the rest (£24 - £2.28 = £21.72 to keep, less the £12 cost of buying the tap = £9.72 profit).

Sorry, that was a lot of numbers.

So the scheme exploits this 9.5%. If you are using CIS then it means most of your customers are other businesses, not man on the street and so you would have to raise a back dated invoice to your customer for VAT (which they can reclaim in full if VAT registered as big contractors cannot use flat rate scheme as only can be used if your turnover is less than £150k per year).

You are then VAT registered, cannot reclaim any VAT on purchases but when your backdated invoice is paid by your main contractor you only pay 9.5% of the VAT over and keep the rest, thus you gain.

However, you are VAT registered and will have to adhere to all the rules, any sales you do outside of CIS work for man on the street will now be subject to VAT so you'll be more expensive than the unregistered bloke.

There's nothing wrong with this per se, not so much a loophole as just taking advanatge of a scheme retrospectively. It is certainly not illegal or dodgy, but if you didn't follow my posts above, then you need to get seperate advice and make sure you do understand it as at the end of the day, any errors or failures will lead to penalties which will be YOURs to pay, not your advisors.

Personally, a good book-keeper for a few quid will point you in the right direction without the need to involve third party agents.

That's exactly it.

Obk work with the company who deal with my payments.

They also offer the book keeping and self assessment service for a small weekly/monthly few, I haven't taken them up on that.

Basically my work is strictly labour only as I'm a Civil Engineer working on a labour only contract basis.

I get paid through an agency who invoice the client direct, I pay a relatively small fee for insurance and payment handling, my tax is deducted at source and paid by the same agency.

What obk have indicated is that they would on my behalf and in line with hmrc and the agency, re- invoice for my payment history with VAT, this they state would be the only VAT element I am liable for...

Register me for flat rate and from there a rebate can be sought.

Obviously they will have their cut, that's acceptable.

What I'm not sure about is how that would leave me with VAT affairs out with the flat rate scheme, they say they will deal with the payroll vat element on my behalf for the foreseeable.

With the bad press on tax avoidance schemes recently I just wasn't sure if this method is acceptable or not.

My income is from my labour rates and my expenditure is on travel, accomodation while away from home and various items of PPE, mobile phone etc.

I have an accountant lined up to carry out my self assessment when due but just thought I would enquire on here as it was out with hours of contacting any professional body.

No harm in trying to make sure you do the right thing.

Savvy_Sue

If you have an accountant lined up, I would talk to them about this. Their fees for this might be less than OBK want to charge.

bris

Never regester for VAT if you don't have to or you are providing VAT free services or goods. The VAT man makes a profit every time, whatever you can claim VAT back on you pay a lot more to them for the goods or service you provide.

As a tradesman it can make you uncompetitive in this harsh climate, even to other VAT registered businesses.

ILW

bris wrote: »

Never regester for VAT if you don't have to or you are providing VAT free services or goods. The VAT man makes a profit every time, whatever you can claim VAT back on you pay a lot more to them for the goods or service you provide.

As a tradesman it can make you uncompetitive in this harsh climate, even to other VAT registered businesses.

Why is that?