Quoted VAT included in price but not VAT registered

J_Andrews

Hi,

I wondered if someone could help me as I am having a bit of a moment here and starting to panic a little.

I recently set up a business 6 months ago selling cut down timber to the public. I had a request almost instantly to provide a large order and quote a price. The buyer, who is vat registered, asked if the price includes vat. As I am not vat registered and had not really dealt with vat other than when I buy supplies I have to make sure I get the vat included, because of this and my ignorance, I said yes.

All invoices are paid via paypal and no vat is mentioned on the invoice.

Now I've been reading up about vat (Im still under the threshold) and Im bricking it that I may have done something wrong here that is going to bite me in the behind. I will speak to the buyer and let them know if I have done something wrong, I am not going to cover anything up but I dont want to contact them and look as though I dont know what I am doing as we have a good solid agreement.

More recently when people have asked me for a vat invoice I have explained that I am not VAT registered and so can only provide them with an invoice, this hasn't been an issue.

My main concern is that the buyer will be expected to be able to reclaim the vat as I said it was included in the price.

Apologies if this doesn't make sense, as I said I am concerned I may have inadvertently done something wrong and possibly illegal here and I am going to loose my biggest customer.

Happy to answer any questions you have. Thanks for the help in advance.

J

Oakdene

For them to reclaim the VAT you will have to have provided them with a VAT invoice.

Best way to be is up front & honest with them & say you aren't yet VAT registered & cannot provide a VAT invoice.

Mistral001

You need to contact the buyer about this. it is better to look silly than to be faced with a very angry customer further later. A good way of approaching the subject without sounding as if you do not know what you are doing, is to say that you happened to be discussing the subject of VAT with your accountant and he advised me to contact you etc. etc.

J_Andrews

Dont worry I plan to contact the buyer to make double sure but they are not available for the next day or two (on holiday) and I will have lost all my hair by then worrying about it so thought I would ask on here, thank you for the replies!

I have been selling to them over the last 6 months so I would imagine they would have needed a vat invoice from me by now wouldn't they or could they have done it off of their own back. For example I said the price would be £1.00 inc vat, they then assume the vat is 20% so 20p on each unit?

doningtonphil

If you quoted that the price as £1.00 including VAT then they (if they are VAT registered) would assume that the cost to them is 83p (as they would be able to claim back the 17p.

They may have chosen you over a competitor who quoted say 87p plus VAT, so they may be a bit miffed if rather than you being 4p cheaper you turn out to be 13p more expensive.

As you say you have been trading with you for 6 months, you do wonder why they have not raised the subject of VAT. They may have just been assuming about the VAT (and could get severely caught out if they have a VAT compliance inspection) or they might pile up all their invoices and through them at their accountant some time close to the end of their accounting year.

It is vital you let them know as soon as they get back. It may be they ill want some recompense if cost as a factor in choosing you

J_Andrews

Thanks for the comment Doningtonphil. As stated I will make sure I contact them as soon as they are back.

I have a really good working relationship with them and the last thing I want to do is screw them over. If they want some sort of recompense then I will make sure they get it, its only morally right. I feel guilty enough as it is without actually making them out of pocket. My fault so my responsibility!

The issue with non vat invoices, only paypal invoices, makes me think they are not expecting to get it back as I have double checked all of the invoices and there is no mention of vat on them. The only mention is on the initial quote when they contacted me 6 months ago. Just out of interest can they stack up their invoices and sort it out at the end of the year? I have read VAT has to be returned every 3 months. You could be right though in that they are making an assumption.

The LAST thing I am trying to do is find a way out of getting in trouble or paying them what they think they might be owed. Just trying to find out what I've done, make sure it doesn't happy again and to at least put my head in a position where I know what is probably coming. I genuinely feel like a complete muppet as I thought I was doing the right thing in the first place!

cutandshut

I would register for VAT. If your customers are registered you will be cheaper. It is not necessary to be above the compulsory turnover limit to register voluntarily.

Aquamania

J_Andrews wrote: »

Hi,

I wondered if someone could help me as I am having a bit of a moment here and starting to panic a little.

I recently set up a business 6 months ago selling cut down timber to the public. I had a request almost instantly to provide a large order and quote a price. The buyer, who is vat registered, asked if the price includes vat. As I am not vat registered and had not really dealt with vat other than when I buy supplies I have to make sure I get the vat included, because of this and my ignorance, I said yes.

All invoices are paid via paypal and no vat is mentioned on the invoice.

Now I've been reading up about vat (Im still under the threshold) and Im bricking it that I may have done something wrong here that is going to bite me in the behind. I will speak to the buyer and let them know if I have done something wrong, I am not going to cover anything up but I dont want to contact them and look as though I dont know what I am doing as we have a good solid agreement.

More recently when people have asked me for a vat invoice I have explained that I am not VAT registered and so can only provide them with an invoice, this hasn't been an issue.

My main concern is that the buyer will be expected to be able to reclaim the vat as I said it was included in the price.

Apologies if this doesn't make sense, as I said I am concerned I may have inadvertently done something wrong and possibly illegal here and I am going to loose my biggest customer.

Happy to answer any questions you have. Thanks for the help in advance.

J

As you have now discovered, you can only charge (include) VAT if you are registered for VAT.
Therefore the answser to the question you actually answered yes to should have been no. (and best to have explained that no VAT would be added)

The problem is that the buyer has now assumed the price you quoted which you said included VAT is actually 16.667% cheaper than you are actually going to charge (as the buyer would account in terms of VAT exclusive amounts)

As others advised, and you plan to do, best to try and sort this out sooner rather than later with the buyer, and be prepared to cancel the contract if the buyer would prefer that since you misled him.

Aquamania

cutandshut wrote: »

I would register for VAT. If your customers are registered you will be cheaper. It is not necessary to be above the compulsory turnover limit to register voluntarily.

OP - I would suggest you consult your accountant rather than take the above advice.

Whilst it is true you can voluntarily register for VAT, we certainly don't know enough about your business to advise you to do so.

Aquamania

J_Andrews wrote: »

Thanks for the comment Doningtonphil. As stated I will make sure I contact them as soon as they are back.

I have a really good working relationship with them and the last thing I want to do is screw them over. If they want some sort of recompense then I will make sure they get it, its only morally right. I feel guilty enough as it is without actually making them out of pocket. My fault so my responsibility!

The issue with non vat invoices, only paypal invoices, makes me think they are not expecting to get it back as I have double checked all of the invoices and there is no mention of vat on them. The only mention is on the initial quote when they contacted me 6 months ago. Just out of interest can they stack up their invoices and sort it out at the end of the year? I have read VAT has to be returned every 3 months. You could be right though in that they are making an assumption.

The LAST thing I am trying to do is find a way out of getting in trouble or paying them what they think they might be owed. Just trying to find out what I've done, make sure it doesn't happy again and to at least put my head in a position where I know what is probably coming. I genuinely feel like a complete muppet as I thought I was doing the right thing in the first place!

How your customer pays their VAT is irrelevent to you. There is no way "they stack up their invoices and sort it out at the end of the year"

You have quoted a price that you said included VAT. The customer has presumably taken that in good faith. What surprises me is that they didn't ask for your VAT number. If you cannot resolve this matter either by the customer accepting you made a mistake, or a mutual agreement to cancel the order, then the best way to keep the customer happy this time is to suggest you deduct 16.667% from the quoted price, explain that that is what the ex.VAT price would be that the customer would have been misled by you into ordering against, and that the customer will not be charged VAT as you are prohibited by law from doing so as you are not VAT registered.

Bean_Counter

J_Andrews wrote: »

The buyer, who is vat registered, asked if the price includes vat.

There could be a more simple explanation and one to worry less about in that it could be that the buyer was trying to ascertain if the price quoted was the final price and that there wasn't going to be a higher price on a final invoice?