vat advice

jhawk90

I have small landscaping business and approaching the vat threshold. I have a few questions and hoping people who have been in same situation may be able to help.
1. I sometimes use a sub contractor to do some of the work. he is not registered for vat so doesn't charge me vat. When I do a quote for the client and add his cost in do I need to add vat onto it?
2. pricing. for example until now when quoting for materials I take net price add 20% for vat and 10% my mark up cost. Moving forward and becoming registered and being able to claim the 20% vat back do I just add my 10% mark up to the net price and ignore the vat?
e.g befor vat registered, materials cost £10000, add vat £12000, add mark up £13200
after vat registered £10000, add mark up £11000. does that work?

any help or other advice would be appreciated.

J_B

jhawk90 wrote: »

any help or other advice would be appreciated.

Take life a little easier and stay below the vat threshold?

00ec25

The Vat status of your sub contractor is utterly irrelevant to your pricing decision.
If not registered then subby cost is subby cost.
If vat registered then subby cost is simply subby cost incl 20% vat - 20% Vat reclaimed = subby net cost

Your price strategy appears to be cost + 10% profit
so when yourself vat registered your price is (cost + 10%) + vat

J_B

00ec25 wrote: »

Your price strategy appears to be cost + 10% profit
so when yourself vat registered your price is (cost + 10%) + vat

And then your prices are 20% higher.

00ec25

J_B wrote: »

And then your prices are 20% higher.

well durr

obviously if the landscaping business customer base is consumers unable to themselves recover VAT the "ideal" answer was already given in post 2 - don't cross the threshold because patently the overall price must increase by 20%

that is the reality of a consumer focused business teetering on the VAT threshold. Your prices noticeably go up, you probably lose some turnover as a result,
You may be able to de-register if t/o falls below 83K.

But even if it does not, your underlying pricing model remains as it was before being Vat registered: (cost + 10%) but now the end price is + 20% vat, which you pay to HMRC

so your profit rate remains the same, but your turnover may not, and therefore in real cash terms your actual profit amount may suffer until you t/o returns to a level that gives the previous profit figure.

the above assumes you cannot reclaim any VAT from your suppliers and/or that you do not choose to operate the flat rate VAT scheme instead of the standard scheme

Barney_Rubble_0403

When VAT registers, VAT isn't a cost to the business. It's a balance sheet entry rather than a p&l and has no effect on profit. You are in effect an unpaid tax collector handing over to hmrc the net of VAT from sales less any VAT charged by suppliers.

So for costing any jobs you would work out your costs and then add your profit margin = your revenue and then add 20% VAT.

To the end consumer it looks like your prices have gone up but selling to a VAT registers business makes little difference as they claim the VAT back.

Your question 1 - the answer is yes, you would have to charge VAT regardless if your subbie charges you VAT or not.

This new making tax digital might mean you having to use commercial accounting software.

Best to avoid VAT if possible.

J_B

J_B wrote: »

And then your prices are 20% higher.

00ec25 wrote: »

well durr

I will rephrase ...


If you keep your prices the same, then one sixth of your income will have to go to HMRC, but you will be able to reclaim the vat on some of your inputs.


So, perhaps a 10% (?) reduction in income if you keep prices the same???


So, I will still put a at the end!