Accounting Software? - Construction CIS? VAT?

Gareth83

I'm unsure how you've came to the conclusion £250? Can you elaborate?

Not sure how the below is wrong:
New profit = 6000 - 2000 - 1500 - 750 = £1775

£1775 is £275 more than £1500 is it not?

Regardless of it being £250 or £275, surely I've demonstrated I'm better off with my business model being VAT registered?

I'm just trying to get to grips with it as the main issue I face is some jobs are high materials compared to labour so if I'm not getting the VAT element and not reclaiming what has gone out on the materials I'm already at a loss.

Particularly as I have to pay a 10% network fee for on the panel of approved contractors

ComicGeek

Gareth83 wrote: »

I'm unsure how you've came to the conclusion £250? Can you elaborate?

Not sure how the below is wrong:
New profit = 6000 - 2000 - 1500 - 750 = £1775

£1775 is £275 more than £1500 is it not?

Regardless of it being £250 or £275, surely I've demonstrated I'm better off with my business model being VAT registered?

I'm just trying to get to grips with it as the main issue I face is some jobs are high materials compared to labour so if I'm not getting the VAT element and not reclaiming what has gone out on the materials I'm already at a loss.

Particularly as I have to pay a 10% network fee for on the panel of approved contractors

No.

6000 - 2000 - 1500 - 750 = £1750, not £1775

So the difference is £250, not £275.

Don't forget about the time and admin costs associated with VAT returns and record keeping. Not sure I would bother with that for £250 myself, but might reconsider if larger projects start coming through.

Fine when you're dealing with larger clients who are VAT registered themselves, but may prevent you winning work with smaller clients who aren't as you are now 20% more expensive.

Gareth83

haha, you're right! Surely £250 covers admin costs for a once a quarter return anyway using the freeagent software and automatic submissions.

That's just one job mind! I've got a lot in, and I mean a lot already.

I'm not really interested in smaller clients mind to be fair. But could always operate those from another company

BoGoF

You also need to factor in that for accounting purposes you can only claim the expense for materials net of VAT, so you will have more tax to pay as well.

Gareth83

Again though, even after tax let's just say 20% for arguments sake, the overall profits going to be better I just can't see any other reason why I would not want to go VAT registered straight away given my business model?

phill99

Gareth83 wrote: »

Okay so in this scenario then I'm allocated a job at £5000

Labour has cost me £2000
Materials £1500

Ignoring CIS, gross profit = £1500

Or if VAT registered then job value = £6000 Inc VAT
Labour £2000
Material £1500
Gross profit = £2500
Vat received = £1000, VAT to claim = £250, VAT owed £750
New profit = 6000 - 2000 - 1500 - 750 = £1775

So surely in my circumstances being VAT registered is more profitable by £275 on this one job? This is how all the jobs will work pretty much.

Not sure why this is deemed out my depth?

You are totally, totally wrong.
In your example, you deduct the labour element from your Gross income. You can only do that if they are Registered for VAT. Other wise you deduct from them your net profit.


The VAT money is never yours. You are only the collector of them it HMRC. So any calculations that you do have to be done on a NET basis. You are calculating on a GROSS basis, which is why you are erroneously getting a higher profit when calculating it your way.


As some one that runs a team of 18 subbies, some vat registered, some not, and having been doing it for 17 years, I can guarantee you this: Being VAT Registered does not make you any more profit. in fact it makes you less because of additional accounting fees (actual or Opportunity Cost).


You seriously have an awful lot to learn and you need to see an accountant as you have absolutely no idea about CIS or VAT and I can guarantee that you are going to get stuffed with a very nasty vat bill.

Gareth83

What do you mean it's never mine? The money goes in my bank from my customer, and I've already spent out on my suppliers. The difference is then owed to the vat man yes? So yeah I'm just collecting it that's fine with me...

But as you say for profit I should base it on net then...

Job value £5000
Labour £2000
Materials £1250
Gross profit = 5000 - 2000 - 1250 = £1750

So back to the £1750 again ie. £250 better off than the £1500 of being not vat registered?
I still owe £750 VAT but that's just collected and set aside so not used for profit calculations but still yields same answer?

In my second example of just a material job:

One item in isolation, I can be allocated the job value for materials at say £400 net

Job value £400 including allowable uplift on net value of materials of 10%
Material cost £436.37 = (400/1.1) * 1.2
Profit/Loss = loss of £36.37

But if vat registered

Job value £400
Material cost £363.46
VAT bill = £80 - £72.73 = £7.27
New profit = 400 - 363.46 = £36.54

So again I'm better off by being vat registered also from making a £36 loss to £36 profit so £72 better off....

If this is incorrect please show me a calculation or a link how to calculate it or which bit of wrong?

Gareth83

Flat rate scheme of current rate of 9.5% could be even better and simpler!

Job value = 5000 net
Labour = 2000
Materials = 1250 net

Vat calculation = 6000 * 9.5% = £570

Gross profit = 6000 - 2000 - 1500 - 570 = £1930

Thoughts on that?

Example 2

Job value £400 net Inclusive of 10% allowable uplift
Material cost £363.64 net (400/1.1)
VAT calculation = £480 x 9.5% = £45.60
New profit = 480 - 436.37 - 45.60 = £1.97 loss

So example 1 is better using flat rate, example 2 is better than not being registered but not as good as standard 20% vat. But this example is rare as jobs overall are more like example 1.

The bonus of flat rate scheme is also that you get a 1% discount per year. Not sure if that means it's 8.5% or 1% discount on vat bill

Thoughts?

BoGoF

You seem to be under the mistaken impression that this site is for free tax advice.

My thoughts.......as numerous people have advised you, go and see an accountant about your get rich quick scheme.

Gareth83

I've seen my accountant, and he actually suggested initially flat rate may be best but he doesn't know my work volume.

I do, and yes I do know my market is very profitable I sense your sarcasm in the 'get rich comments' but let's see hey.

And no I'm not asking for tax advice I'm asking for someone to check my calculations I've posted. I think my last two posts are correct?