VAT - Can A Sole Trader Unregistered for VAT Charge VAT on invoices?

LoveParasite

VAT question…

Can someone describing themselves as a sole trader charge VAT on an invoice when they are unregistered for VAT?

The issue is I’ve been charged VAT on an invoice.  The sole trader claims he doesn’t have to be registered but can still charge me VAT?

I’m aware of the threshold that has to be met before a sole trader must apply for VAT registration. I’m aware that any trader can voluntarily register for VAT despite the threshhold.  I think I'm clear about this? 

I’ve looked online at HMRC and other sites.  I can’t find anything definitive from a legal standpoint.

If anyone has any information or links to information that would be helpful. 

Could I ask that if you reply with information that it is simplified for the beginner. VAT is not an area I’m familiar with.

Thanks.

MDMD

“ You must register for VAT to start charging VAT.”

https://www.gov.uk/charge-reclaim-record-vat

So, basically no, they are charging VAT unlawfully 

comeandgo

If a company has bought an item to sell on, say it cost £100 plus £20 vat that company may sell it on at £120 so in a way they are charging you vat but they could not detail their invoice as £100 plus Vat £20.  

LoveParasite

On the basis of the information above provided by @comeandgo and @MDMD it seems my sole trader has, as I thought, crossed a line on one invoice.  The second invoice has "inclusive of VAT" rather than a specific VAT amount.  It was the difference in how the VAT was applied over two invoices that alerted me to the issue. 

I'm assuming that the second invoice, that just has a total amount with the caveat of "inclusive of VAT" noted under the total amount, is an acknowledgment that VAT has been charged too?  Or, is this a grey area?

Thanks for the swift replies.  I've been going around in circles with this.

user1977

Can we check what the effect (if any) is on you? Had you agreed a VAT-exclusive price and they're bumping it up by 20%? Are you VAT-registered?

zedonk

Your understanding is correct. A sole trader can register for VAT voluntarily if they're under the threshold (I have), but they can't charge VAT if they're not registered. There would be no way for them to pass that VAT onto HMRC. 

Grumpy_chap

LoveParasite said:

VAT question…

Can someone describing themselves as a sole trader charge VAT on an invoice when they are unregistered for VAT?

The issue is I’ve been charged VAT on an invoice.  The sole trader claims he doesn’t have to be registered but can still charge me VAT?

I’m aware of the threshold that has to be met before a sole trader must apply for VAT registration. I’m aware that any trader can voluntarily register for VAT despite the threshold.  I think I'm clear about this? 

I’ve looked online at HMRC and other sites.  I can’t find anything definitive from a legal standpoint.

If anyone has any information or links to information that would be helpful. 

Could I ask that if you reply with information that it is simplified for the beginner. VAT is not an area I’m familiar with.

Thanks.

The simple answer to the opening question is "no".

You do need to understand exactly what the sole trader is showing as VAT.

You have not mentioned what the work is, so let's consider an example of a garden fence, quoted to you at £1,000 - a price that you are happy with and reflects the market rate for the work.
You receive an invoice that is £1,000, so should be happy to pay that.
The trader is not VAT-registered, so there should really be no reference to VAT in the invoice.  However, small sole-trader business may not fully understand the way VAT works.

Does the invoice show £833.34 plus VAT at 20% (£166.66) so the total at £1000?
That would be incorrect.

If, however, the invoice was showing something such as:
 - Labour (two days) £600
 - Materials £333.34 plus VAT at 20% (£66.66) equals £400
Total charge to customer £1,000
That is still incorrect, but I would show some forbearance that is simply the incorrect transfer of the material costs copied from the invoice form Jewsons (or wherever) that the sole-trader purchased the materials from.
As the sole-trader is not registered for VAT, they are not able to reclaim the input VAT, so it makes little difference whether the invoice shows Labour £600 plus materials £400, total £1,000 or if the invoice (incorrectly) shows the split on the materials costs.

Even the second invoice with "inclusive of VAT" seems incorrect as, in the absence of anything to the contrary, it would seem most likely to assess that as £1,000 total is £833.34 plus £166.66 VAT.

The thing is, this all becomes difficult to do anything about in a practical sense.
Did you agree a (total) price for the job as a consumer?
Has the works been done correctly?
Are you now being charged the original agreed (total) price?
If the answer to all three is "yes", then whether the sole trader understands VAT or not does not actually have an effect on yourself and there seems little you can do practically about things.  Your options would be:
 - complain and deduct the VAT-element from the originally agreed price
 - report to HMRC (which the sole-trader might guess was you if HMRC investigate)

prowla

If it's for the retail price (including VAT) they've paid for goods, then they can/should pass that straight on to you as-is.

If it's for their services, then they cannot charge you VAT; since they're not registered, they're just adding a 20% markup.

LoveParasite

Thanks @grumpy_chap, @prowla & @zedonk.  While I doubt HMRC will rush to investigate I now feel more confident contacting them to complain.  The VAT is part of a wider set of issues re: the works.  I'm resigned to the fact I won't see any money back.  However, I want to do all I can to ensure that no-one else becomes a victim of the problematic trader and their varied duplicitous practices.

I wish I had asked my question in the forum first.  Thanks to all that replied.

Okell

As per grumpy_chap if the trader quoted you eg £1000 and that's what he's charging you it doesn't really matter how he shows it on his invoice.

But if he quoted you £1000 and he's now trying to add VAT onto that... that's a problem.

If he's trying to do the latter I'd suggest that that could be a criminal offence under The Consumer Protection from Unfair Trading Regulations 2008 (legislation.gov.uk) and you should complain to CAB and ask them to report it to Trading standards for further investigation

LoveParasite

One invoice has for example

£1,000

VAT @ 2O%

£200

Total,

£1,200

The other invoice has a total amount of for example

£500

it states underneath this, "Inc VAT". I'd assume that this suggests a VAT charge/aknowledgement of £100

There is no VAT registration number on either invoice.  I'm aware that threshold can dictate registration but also that is can be applied for on a voluntary basis when under the threshold.