VAT query

thefool

I've got a query regarding VAT which is:

If someone provides a service for you via a third party, pays the third party in cash (i.e. no invoice,receipt or other note of transaction). Can they then charge you for VAT for that service ?

thanks,

longforgotten

I'll have a go at explaining this on a limited knowledge.....

If the person providing the service is registered for VAT he has to give you an invoice. If the service he provides to you is classed as a standard rated service then he has to charge vat on it even if the 'third party' is not vat registered ( paid by cash, no invoice , whatever ). He will presumably be charging you more for the 'third party' work than it has cost him, as he needs to make a profit.

If however the person raising the invoice passes on the cost of the third party on to you, at the same cost as it cost him, it can be classed as a disbursement. A disbursement will not be shown on VAT returns as a sale or purchase. The person cannot pick and choose which invoices he applies the 'disbursement' method to , it is either all the sales invoices or none. If its none then its back to if its a standard rated supply then VAT has to be declared.

thefool

longforgotten wrote: »

I'll have a go at explaining this on a limited knowledge.....

If the person providing the service is registered for VAT he has to give you an invoice. If the service he provides to you is classed as a standard rated service then he has to charge vat on it even if the 'third party' is not vat registered ( paid by cash, no invoice , whatever ). He will presumably be charging you more for the 'third party' work than it has cost him, as he needs to make a profit.

If however the person raising the invoice passes on the cost of the third party on to you, at the same cost as it cost him, it can be classed as a disbursement. A disbursement will not be shown on VAT returns as a sale or purchase. The person cannot pick and choose which invoices he applies the 'disbursement' method to , it is either all the sales invoices or none. If its none then its back to if its a standard rated supply then VAT has to be declared.

Thanks for the response however I'm not too sure what this means, sorry ! However to clarify. I own my property in a four flat conversion. An absentee landlord owns the other three properties. There are certain common maintenance issues, i.e. gardening, roof cleaning, etc that he instigates. He gets a guy in and pays him cash. He then invoices me for 25% of the total, charging me VAT on that sum.

If he is not paying VAT to the person who supplies the service, can he then charge me VAT for that service ?

thanks again,

Debt_Free_Chick

thefool wrote: »

If he is not paying VAT to the person who supplies the service, can he then charge me VAT for that service ?

thanks again,

Yes. If the LL is registered for VAT for the services he's providing and they are VAT-able, then he has no option to but to charge VAT.

The gardener has no option but to EXCLUDE VAT as he's not registered for VAT.

The VAT that the LL collects from customers for his services is paid over to HMRC (after deduction for any VAT that the LL has paid on services he's received).

VAT is only ever a tax levied on the end consumer. All businesses do is collect it on behalf of HMRC. Unpaid tax collectors! :mad:

dejongj

Debt_Free_Chick wrote: »

Unpaid tax collectors! :mad:

Rubbish Such a general popular statement but very untrue.....Over the last 6 months I have been able to keep £2.5k of the collected VAT in my own pocket. Plus in addition gained interested whilst I had the money in my business reserve account.....You can actually get paid pretty well for collecting the VAT.....For smaller companies there is the flat rate scheme, i.e. collect at 17.5% and only repay at 12% (for me).....And then if you are on annual accounting the interest gained for larger companies is not to be dismissed...

longforgotten

Worth a read..............
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&columns=1&id=HMCE_CL_001596#P2401_197529

PasturesNew

Back to the original question:

Yes.

If the invoice you have in your hand is charging VAT and it has a VAT number on it, then it is right/legal. Of course this is assuming it is a valid VAT number and he didn't just make it up.

If he is VAT registered, he is obliged to charge VAT - even if he paid nothing for what he is charging you. e.g. if he poured a glass of water from your tap and invoiced you £10 for it, he'd have to legally charge you £10+VAT.

It has nothing to do with what he paid for goods/services or who he got to provide those. He cannot make an exception, it is not his decision. By law he HAS to charge VAT.

ManAtHome

As previously stated, you should be getting an invoice with a VAT number on it - see this page if you want to check it out http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015895

Giminy

The first thing to do is find out if he is VAT registered.
If so - then you need to check that his VAT registration is relevant to the business for which he is charging you ie. if his business is registered as a shirt manufacturer then I think I am right in saying that he would not be able to charge you VAT for this as it is not relevant to his business (in the same way that he would not be able to claim back any VAT from the VAT man for money spent that is not relevant to his business.

However, if his business is say Property Management, and you have agreed that his business maintain the flats etc. then he would be able to charge VAT to you.

Finally - as you don't see any orginal bills anyway - why can't he and you, as owners of the flats pulling together to maintain them, just agree on the amount he has had to pay and then divide that amount proportionately ie you just pay him 1/4 of the expenses he has incurred. There is no reason for him to 'invoice' you, unless he is employed to 'manage' the flats.

Giminy

Altarf wrote: »

You are mistaken.

When a person (and I use this term to mean either an individual, partnership, limited company, or other entity) is VAT registered, everything that the person does by way of business falls within the VAT registration.

So for example, if a VAT registered fish & chip shop owner decides to do some gardening when the chip shop isn't open, they must charge VAT on their gardening services, but would be able to claim back VAT on any expenses relating to the gardening.

A lot of people fail to understand this, and do mistakenly only account for VAT on what they perceive as their VAT registered business, and not their 'other' business.



It is not as simple as this. The answer will depend on who the the services he is invoicing have been provided to. If the services he is charging for (from the 3rd party) form an integral part of his service then he cannot simply divide the cost between the flats and not charge VAT on them.

Thanks for raising this as have learnt something new. I was not sure that your answer was correct and so telephoned the VAT office who advised :
1) If it is a Sole Trader that is registered for VAT then everything he does must have VAT added - regardless of his main business - therefore if the Landlord is a sole trader and is VAT registered, then you are correct - he must charge VAT
2) If it is a Partnership or Ltd company, and one of the directors goes off and does something that is not relevant to the business, then VAT will not be chargeable. (He did point out that the Partnership one may be not be as clear cut as this, depending on exactly how the Partnership is made up and what their business is)

We learn something new everyday!