When can I add VAT

Newuser1987

I need to register for VAT in the next few weeks. However as an architect my contracts with clients can often span months. Normal process is to send out a quote and then once agreed carry out the works and then invoice. Normally works out about 1-2 months from sending out quote to getting paid.

My questions is if I was to send out a couple of quotes in the next day or so could I mention that the fees are exclusive of VAT? (I think I already know the answer but hoping there is some way around it?)

My clients are mainly domestic clients so the whole VAT thing will be quite a hit for all the contracts already in place. This is because I wont just be able to add VAT in addition to what I quoted but consume the VAT in fee. Which is why I am holding off until the last minute to register!

Savvy_Sue

do you not have an accountant to check this with? I know they won't have been open today, but they should give you best advice on how to go about this.

Newuser1987

I have asked my accountant but she is not back until Monday. I wanted to send out the quotes this week as I was meant to do them before Xmas.
I thought it would be a simple question to answer. Or maybe your response is code for I can’t publicly say but if you ask your accountant they may give some candid advice?

Savvy_Sue

No it's not code. I'm not an accountant and I've never had any dealings with VAT. However there are some recent threads on here which while not directly relevant to your situation might give you some clues and should definitely indicate that there are some pitfalls for the unwary.

backdated VAT not being paid by employer

Vat Question Please

Newuser1987

Savvy_Sue wrote: »

I'm not an accountant and I've never had any dealings with VAT.

Okay thanks for trying anyway but those posts arent really relevant as they are dealings between VAT registered companies. My situation is different as I am charging consumers. They will just be interested in what they will be charged in total not if they can claim VAT back.

In hindsight I guess it doesnt really matter if it states VAT in the quote or not. As long as I propose a fee which takes into consideration that I will be charging VAT when I invoice. i.e.

Normal fee £10
Charge when VAT registered £12

Therefore propose a fee of £12 now with no mention of vat.
When I go to invoice and charge VAT invoice will say £10+ £2 VAT

Savvy_Sue

There was the suggestion that using 'VAT applied for' would have been a possibility on the invoices (and Pennywise knows more about this than I ever will ...). I think what those two threads show is that it is not always straightforward and if you don't know what you're doing you can make mistakes.

Newuser1987

Savvy_Sue wrote: »

it is not always straightforward and if you don't know what you're doing you can make mistakes.

Agreed which is why I started the thread. I think I have answered the issue myself but hopefully someone can help

00ec25

Newuser1987 wrote: »

I think I have answered the issue myself but hopefully someone can help

yes you have more or less answered it

Newuser1987 wrote: »

In hindsight I guess it doesnt really matter if it states VAT in the quote or not.
No, it very much does matter, you cannot mention VAT at all until you have received your VAT number and effective date from which you are registered. Sending a quote + vat, including VAT, or VAT exclusive is technically wrong and would land you in trouble since it is illegal to charge VAT when not VAT registered. (Although the repercussion of such illegality are a different matter)

As long as I propose a fee which takes into consideration that I will be charging VAT when I invoice. i.e.

Normal fee £10
Charge when VAT registered £12

Therefore propose a fee of £12 now with no mention of vat. is the correct answer
When I go to invoice and charge VAT invoice will say £10+ £2 VAT is the correct answer

The point at which you need to register should be reasonably easy to predict given it is based on your turnover for the last rolling 12 months.
Given your lead times suggest a quote will be 2 - 3 months before an invoice, then yes, you must inflate your quotes now by the amount you will finally incur for VAT. But you cannot mention VAT on the quote.
Your invoice will then be VAT inclusive and thus meet HMRC VAT compliance, whilst the gross total will mean the customer pays you enough cash to meet your VAT dues and your profit expectation.

The same temporary position will prevail between your applying for registration and you being given the effective date (as per the previous threads) and therefore the (presumed) need to issue retrospective invoices with VAT now declared on them

Obviously as your clients are consumers and therefore your prices to them are now going to increase by 20% that may mean your quotes appear uncompetitive and contracts never materialise. That is a risk you take for as long as it takes you to significantly clear the VAT threshold and move over to a robust client base and turnover of people who are less price sensitive to having bills inflated by 20%.

Newuser1987

00ec25 wrote: »

The point at which you need to register should be reasonably easy to predict given it is based on your turnover for the last rolling 12 months.

Yes luckily I only registered as a Limited company back in March so quite straight forward to predict as its just my Year to Date. I will be due to invoice for a couple of jobs next week which will tip me over. From what I have read I only need to register once I go over?

00ec25 wrote: »

The same temporary position will prevail between your applying for registration and you being given the effective date (as per the previous threads) and therefore the (presumed) need to issue retrospective invoices with VAT now declared on them

The retrospective word slightly worries me. My assumption was that from the date that I register any invoices sent out will then need to include VAT. I again would consume the VAT within my original price and not charge my client any extra amount. Maybe this is what you meant by retrospective?

00ec25 wrote: »

Obviously as your clients are consumers and therefore your prices to them are now going to increase by 20% that may mean your quotes appear uncompetitive and contracts never materialise. That is a risk you take for as long as it takes you to significantly clear the VAT threshold and move over to a robust client base and turnover of people who are less price sensitive to having bills inflated by 20%.

Yes quite a risk but luckily I have started to inflate my fees recently to check the responses and majority of Architects charge VAT so it was only a matter of time.

One question I now have from all this is:
Say I am at £83k YTD (£2k below the threshold). I then invoice two clients £2k each on the same day. I have then obviously gone over the threshold. Will HMRC require me to charge one of the clients VAT as it was over the threshold. Or is there some tolerance in how the threshold applies case by case?

00ec25

Newuser1987 wrote: »

Yes luckily I only registered as a Limited company back in March so quite straight forward to predict as its just my Year to Date. I will be due to invoice for a couple of jobs next week which will tip me over. From what I have read I only need to register once I go over?

yes

Newuser1987 wrote: »

The retrospective word slightly worries me. My assumption was that from the date that I register any invoices sent out will then need to include VAT. I again would consume the VAT within my original price and not charge my client any extra amount. Maybe this is what you meant by retrospective?

there will be a delay between you sending the registration and you receiving your VAT number and effective date. Your effective date will be retrospective since you are holding to the last second to register, so your date will be the date ypu tipped over.

therefore whilst waiting for your vat no, there is an interval during which you may raise an invoice. That invoice must not yet mention VAT but obviously must be inflated so that when the effective date is given to you, you then reissue that invoice as a VAT invoice . if the client has already paid the gross then you send them a VAT only invoice marked paid.
if they have not paid, then make sure they understand the VAT invoice replaces the non vat invoice.

Newuser1987 wrote: »

Say I am at £83k YTD (£2k below the threshold). I then invoice two clients £2k each on the same day. I have then obviously gone over the threshold. Will HMRC require me to charge one of the clients VAT as it was over the threshold. Or is there some tolerance in how the threshold applies case by case?

have you mastered invoice's taxpoint date and the 14 day window yet?

Newuser1987

Thanks all very useful

00ec25 wrote: »

have you mastered invoice's taxpoint date and the 14 day window yet?

Yes slightly. Although I may need to do some more reading into this because of the way I 'supply' my services. It is not always clear what my 'date of supply' is. As an example a I may have issued a set of drawings to a client but my services may not have stopped there if for example they come back and ask me to make changes.

Maybe my example wasnt the best. I was assuming in the example that the supply date and invoice date was exactly the same. Maybe a clearer example would be say if I invoice someone for £4k and currently at £83k profit YTD. This would then tip me over to £87k. £2k over the threshold. Would HMRC want me to retrospectively charge VAT for the £2k I am over the threshold.

As I am writing this I am quite certain the answer is no. I may go over the threshold but I am not liable to incur VAT until I have registered which would be after invoicing the £4k in my example.