Charging VAT when not yet VAT registered?

willyboy104

Thanks Aquamania, from what I read on the HMRC website you can't reclaim VAT on purchases, however for things such as a laptop (if necessary to work from) then you can still reclaim VAT from this, but then there was something about reclaiming VAT all at once, and they gave some example of buying a computer one month and a printer another month.

System

Just to put the cat among the pigeons. If your contract with the company is silent on the question of VAT (because you were not VAT registered) then it is deemed to be VAT inclusive.

So instead of E.G. charging them £1000 (pre-vat) you are now charging them £833 + VAT. UNLESS you negotiate a new price of £1000+VAT

https://globalvatonline.pwc.com/uk/tls/gvol2/gvol2.nsf/AllByCode/DMCL-9DEDUV?open
Nov 13

The ECJ has confirmed that, where a contract is silent on VAT, any amount paid is deemed to be inclusive of any VAT due unless there is a legal entitlement in domestic law for the supplier to recover the additional amount from the customer

HMRC stance follows this ruling and there is no entitlement under UK domestic law to recover the additional amount

Aquamania

willyboy104 wrote: »

Thanks Aquamania, from what I read on the HMRC website you can't reclaim VAT on purchases, however for things such as a laptop (if necessary to work from) then you can still reclaim VAT from this, but then there was something about reclaiming VAT all at once, and they gave some example of buying a computer one month and a printer another month.

That's right. I did say "in most cases", implying that there are some exceptions.
You are doing the right thing by referring to the HMRC website.

Aquamania

!!!!!! wrote: »

Just to put the cat among the pigeons. If your contract with the company is silent on the question of VAT (because you were not VAT registered) then it is deemed to be VAT inclusive.

So instead of E.G. charging them £1000 (pre-vat) you are now charging them £833 + VAT. UNLESS you negotiate a new price of £1000+VAT

https://globalvatonline.pwc.com/uk/tls/gvol2/gvol2.nsf/AllByCode/DMCL-9DEDUV?open
Nov 13


HMRC stance follows this ruling and there is no entitlement under UK domestic law to recover the additional amount

I am not authorised to view the full details of the item you have given the URL to, so can only see the bit you have quoted.

Therefore, as this is just a very brief summary, I am not sure what it really refers to, and feel you are in danger of muddying the waters here, by incorrectly assuming it applies to non-VAT regiostered entities.

You see, if you are not registered for VAT, then no VAT is due

I'm guessing here, but I guess the article refers to VAT registered entities that may not specifically state the VAT amount. e.g. shops

As far as I know, the HMRC position is that when a person or business becomes registered for VAT, they are required to ADD the appropriate amount of VAT to all invoices issued thereafter.

It would be nonsensical for non-VAT registered entities to explain their prices are excluding VAT. In fact it would be nonsensical to expect non-VAT registered entities to even mention VAT at all.

I can't imagine any reason HMRC are in the slightest interested what price is charged (except to calculate the VAT due), but following your suggestion, that would reduce the revenue to the government

System

The contract is for an overall cost. Before you were VAT registered, this is what they paid you and what you account for.

Now you are VAT registered, you still have a contract for services at £1000 total price. Unless the contract is re- negotiated and changed to a VAT exc price then this will be VAT inclusive unless otherwise stated. So you are now charging £833 + VAT.

You have the conflict that you must charge VAT BUT you have a fixed price contract. Your choice is absorb the loss due to VAT or re-negotiate the contract

Look at Google. There are plenty of examples in the contractor sector where people have been caught by this

Slinky

willyboy104 wrote: »

Thanks Aquamania, from what I read on the HMRC website you can't reclaim VAT on purchases, however for things such as a laptop (if necessary to work from) then you can still reclaim VAT from this, but then there was something about reclaiming VAT all at once, and they gave some example of buying a computer one month and a printer another month.

You can claim for VAT whilst on the flat rate scheme but it has to be purchases of £2K upwards for a single item IIRC, so your laptop is unlikely to fall into that category these days.

IIRC you can also put a single claim in at the start of your registration for items you've paid VAT on that are still in the business. You'll need to investigate more on this (I wasn't told about it so didn't claim and missed out). Also in the first year of registration you're entitled to an extra 1% discount on the flat rate scheme if you choose that scheme.

olly300

The reclaiming of VAT on purchases under the flat rate scheme is complicated as like already stated you can claim if the cost of a single item is £2k+however a single item can be a bundle of related items from the same retailer purchased at the same time on the same invoice.

This means if you buy a laptop, printer, external hard drive, laptop bag etc from one supplier at the same time and it comes to £2K+ then you can claim back the VAT.

However if you buy a laptop and printer from one supplier but an external hard drive from another then while the laptop and printer are seen as one purchase the external hard drive is seen as another, so you cannot claim the VAT back.

People get stung by this when they buy on websites like Amazon. They don't read whether firstly they are buying from a third party and not Amazon directly, and secondly whether the retailer they are buying from is VAT registered.