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  • FIRST POST
    Radsteral
    charging vat twice or?
    • #1
    • 2nd Oct 11, 8:00 PM
    charging vat twice or? 2nd Oct 11 at 8:00 PM
    i have got a small bussines in construction...
    2 years ago i registerd for vat
    on invoices i send, if materials cost 1000.00 and labour costs cost 3000.00 i add them up equalling 4000.00 then add 20 percent vat on top of it .
    have done this 2 years and never had a comeback but 1 client is telling me i am charging him twice vat for materials ...once when i buy the materials and once on top of everything.
    so she s saying i should only charge her vat on the amount of 3000.00?
    whos right?
    accountant abroad and send an email to hmrc vat helpline and got a reply '' we ll reply in 15 days
Page 1
  • heretolearn
    • #2
    • 2nd Oct 11, 8:07 PM
    • #2
    • 2nd Oct 11, 8:07 PM
    Do you charge out materials at cost?

    In that case, you should only put down their cost before VAT, as that is the actual cost to you. And then add VAT at the end. If you are putting down the cost including VAt, and then adding VAt to that, well you aren't exactly charging VAT twice but you are charging your client more than cost price.

    i.e materials cost you 100+VAt = 120.

    You are charging client 120+VAT = 144

    wheras you should be charging them the 100+VAt.

    However, unless this is something you agreed with the client, you are under no obligation to only pass on materials at cost. You are currently making a profit on the supply of materials. Is that a problem?
    Cash not ash from January 2nd 2011: 2565.

    OU student: A103 , A215 , A316 all done. Currently A230 all leading to an English Literature degree.

    Any advice given is as an individual, not as a representative of my firm.
  • Radsteral
    • #3
    • 2nd Oct 11, 8:18 PM
    • #3
    • 2nd Oct 11, 8:18 PM
    i see, then the problem lies with me . i did the breakdown on the invoice, so the same invoice that goes to client, goes to the accountant, and she wants a breakdown like this, for vat purposes every 3 months and for tax purposes too as if i work for companies, she need to know the tax the companies withhold from the actuall invoice and tax only calculated from labour cost..
    thanks , next time i ll probably have to send a seperate invoice to the client and a seperate invoice for tax purposes .
    and yes price agreed is 4000 plus vat , so thats what it was agreed- i m not ripping her off
  • heretolearn
    • #4
    • 3rd Oct 11, 9:12 AM
    • #4
    • 3rd Oct 11, 9:12 AM
    i see, then the problem lies with me . i did the breakdown on the invoice, so the same invoice that goes to client, goes to the accountant, and she wants a breakdown like this, for vat purposes every 3 months and for tax purposes too as if i work for companies, she need to know the tax the companies withhold from the actuall invoice and tax only calculated from labour cost..
    thanks , next time i ll probably have to send a seperate invoice to the client and a seperate invoice for tax purposes .
    and yes price agreed is 4000 plus vat , so thats what it was agreed- i m not ripping her off
    Originally posted by Radsteral

    Seriously, you need to speak to your accountant about this, I can't quite make head or tail of the above and you clearly don't understand how VAT works. You certainly CANNOT raise two different invoices for the same thing, one for the client and one for 'tax purposes'.

    If your agreed price was 4000+VAT then that's what you charge. There is no need to break this down further if you don't want to, it makes no difference whatsoever to your client. As long as there is the VAT figure shown clearly. Also, if you haven't agreed to charge materials out at cost, then put whatever you like for the materials cost, plus VAT. You aren't charging them VAT twice.

    'She need to know the tax the companies withhold from the actuall invoice' - this doesn't make any sense at all. Companies have to pay the VAT on invoices and then look after their own VAT returns. What another company is doing is not relevant. You can't 'withold tax' from an invoice - do you mean not pay that part of the invoice, or not include it on the invoice?

    Seriously, talk to your accountant. But anyway, your invoice should have been for 4000+VAT = 4800, clearly showing that 800 of that is VAT.
    Cash not ash from January 2nd 2011: 2565.

    OU student: A103 , A215 , A316 all done. Currently A230 all leading to an English Literature degree.

    Any advice given is as an individual, not as a representative of my firm.
    • Mistral001
    • By Mistral001 3rd Oct 11, 11:29 AM
    • 3,440 Posts
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    Mistral001
    • #5
    • 3rd Oct 11, 11:29 AM
    • #5
    • 3rd Oct 11, 11:29 AM
    The customer is correct. The OP should be doing all his breakdowns nett of VAT and add VAT on at the end if the OP is VAT registered.
    Last edited by Mistral001; 03-10-2011 at 1:36 PM.
    • molerat
    • By molerat 3rd Oct 11, 12:46 PM
    • 20,197 Posts
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    molerat
    • #6
    • 3rd Oct 11, 12:46 PM
    • #6
    • 3rd Oct 11, 12:46 PM
    Unless the client sees the invoice from the supplier there should be no problem. The problem is if you are stating "materials at cost" in your contracts and then charging them the supplier vat inclusive price then adding vat on top. Your accountant only needs to see the invoice to your client and the invoice from your supplier which is what you should be giving them anyway. When you have your car fixed at a garage you will see parts, labour and vat. The price quoted for parts is normally rrp excluding vat and not cost .
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    • JasonLVC
    • By JasonLVC 4th Oct 11, 8:08 AM
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    JasonLVC
    • #7
    • 4th Oct 11, 8:08 AM
    • #7
    • 4th Oct 11, 8:08 AM
    The customer is correct. The OP should be doing all his breakdowns nett of VAT and add VAT on at the end if the OP is VAT registered.
    Originally posted by Mistral001
    The customer is not correct.

    Does the customer go into Tesco, buy a pair of jeans and then demand that the VAT relating transportation costs, shop overhead, and material costs be deducted from the eventual selling price becuase "they're being charged twice"?

    The OP buys materials in and pays VAT on those materials. The OP can choose, if they want to, to charge those materials onto the customer at cost (ie, the ex VAT price as OP can reclaim the VAT) or not at cost, it will depend upon the contract.

    OP has stated they agree a price of 4k + VAT so it makes no difference what the cost of materials, labour or profit margin is, customer agreed 4k + VAT and that is the price they must pay.

    The customer could always insist on supplying their own materials if they want to - but then they wouldn't get the discount from the builders merchant that the OP can get and so it is swings and roundabouts.
    Anger ruins joy, it steals the goodness of my mind. Forces me to say terrible things. Overcoming anger brings peace of mind, a mind without regret. If I overcome anger, I will be delightful and loved by everyone.
    • martindow
    • By martindow 4th Oct 11, 8:54 AM
    • 7,993 Posts
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    martindow
    • #8
    • 4th Oct 11, 8:54 AM
    • #8
    • 4th Oct 11, 8:54 AM
    The customer is not correct.

    Does the customer go into Tesco, buy a pair of jeans and then demand that the VAT relating transportation costs, shop overhead, and material costs be deducted from the eventual selling price becuase "they're being charged twice"?

    The OP buys materials in and pays VAT on those materials. The OP can choose, if they want to, to charge those materials onto the customer at cost (ie, the ex VAT price as OP can reclaim the VAT) or not at cost, it will depend upon the contract.

    OP has stated they agree a price of 4k + VAT so it makes no difference what the cost of materials, labour or profit margin is, customer agreed 4k + VAT and that is the price they must pay.

    The customer could always insist on supplying their own materials if they want to - but then they wouldn't get the discount from the builders merchant that the OP can get and so it is swings and roundabouts.
    Originally posted by JasonLVC
    But when you go into Tesco they do not show their original invoice so you never know their mark up.

    As the OP includes the original invoice the customer can see what has been paid and that the OP has marked it up. Say the materials are 1000 + 200 VAT = 1200, OP then invoices for 1200 + 240 VAT = 1440 so I can see the customer's point. Their are two lots of VAT but the customer can only claim 240. The OP has paid the builders merchant so can reclaim the VAT element of that - 200.

    They are not being charged materials at cost so I think the customer is right to query this.
    • DCodd
    • By DCodd 4th Oct 11, 9:22 AM
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    DCodd
    • #9
    • 4th Oct 11, 9:22 AM
    • #9
    • 4th Oct 11, 9:22 AM
    I'm assuming that the works being carried out are covered by the CIS tax scheme. Recent changes by HMRC means that if your client is registered as a contractor under the scheme, they have the right to see the original invoice for the materials, as now this is the amount that a subbie can claim as the materials content of their invoices (mark up can not be included in the materials content for CIS purposes), a tax deduction of 20-30% will apply to the labour content if the subbie is registered as under deduction.

    The client may be using the recent changes to reduce any mark up in the materials content. However if you have agreed 4k + VAT this is what you can charge your client, this then means if the materials cost you 833.33 + VAT, your labour content, on the invoice will be 3166.67 + VAT. You still charge 4k + VAT but show your actual materials cost, less VAT on the invoice.

    You can not issue 2 invoices, if you are inspected you will be prosecuted and heavily fined by HMRC.
    Always get a Qualified opinion - My qualifications are that I am OLD and GRUMPY
    • JasonLVC
    • By JasonLVC 4th Oct 11, 9:24 AM
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    • 42,407 Thanks
    JasonLVC
    But when you go into Tesco they do not show their original invoice so you never know their mark up.

    As the OP includes the original invoice the customer can see what has been paid and that the OP has marked it up. The OP has paid the builders merchant so can reclaim the VAT element of that - 200.

    They are not being charged materials at cost so I think the customer is right to query this.
    Originally posted by martindow
    I take your point, but unless the OP is a charity, then I assume there is an element of markup (or else OP will fail to make a profit). That the OP is clearly showing their mark up is a bit daft I agree.

    The customer cannot reclaim any VAT, the 240 as per your example. If the customer could reclaim the 240 what's the problem?

    If the customer cannot reclaim the 240 then the OP could, if they choose to do so, recharge the materials at cost+mark up+VAT.

    Taking your example:

    Materials are 1000 + 200 VAT = 1200 to builders merchant.
    OP reclaims the 200 VAT and so is out of pocket by 1,000

    If OP recharges at cost, they would charge 1000 + 200 VAT.

    If OP adds a margin, of say 200, then invoices will be 1,000 (cost) + 200 (margin) + 240 VAT = 1440

    The customer is not paying VAT on top of VAT, the customer is paying VAT on the materials plus VAT on the additional margin. That's the "Value Added" part of VAT.

    The overall difference between "at cost" and "with profit" is 40 of VAT. The extra 40 is down to the added margin.

    The margin is irrelevant because the customer agreed a fixed price of 4000+VAT and so whatever the margin built into that quote for materials, labour, travel expenses or whatever doesn't matter as the customer is being charged the price they agreed.

    The customer cannot argue over the margin/profit the OP is making on the job after agreeing the contract price.
    Last edited by JasonLVC; 04-10-2011 at 9:40 AM.
    Anger ruins joy, it steals the goodness of my mind. Forces me to say terrible things. Overcoming anger brings peace of mind, a mind without regret. If I overcome anger, I will be delightful and loved by everyone.
    • JasonLVC
    • By JasonLVC 4th Oct 11, 9:38 AM
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    JasonLVC
    if materials cost 1000.00 and labour costs cost 3000.00 i add them up equalling 4000.00 then add 20 percent vat on top of it .
    so she s saying i should only charge her vat on the amount of 3000.00?
    Originally posted by Radsteral
    If you just charged VAT on the 3k for the labour, then HMRC will assess you during an inspetion for the VAT on the 1,000 of materials that you supplied to the customer.

    Whether or not you charge on at cost or not is irrelevant, you are making a supply of goods and services and the total charge you make for them both will be subject to VAT at 20% (or whatever rate that may apply depending upon the type of work you're doing).

    So you could recharge the materials at cost but they'd still have to have VAT charged on top.

    Your customer wants an invoice that states :-

    Materials - 1000 (no VAT)
    Labour - 3000 + 600 VAT
    Total - 4600

    HMRC would expect to see (example 1, "At Cost") :-

    Materials - 1000 + 200 VAT
    Labour - 3000 + 600 VAT
    Total - 4800

    If you did what customer asked, you'd owe HMRC 200 VAT + penalty + interest when they spot this error.

    HMRC would expect to see (example 2, with mark up) :

    Materials - 1200 + 240 VAT
    Labour - 3000 + 600 VAT
    Total - 5040

    Bearing in mind the OP's original question and the customers demand to not have VAT charged on the materials the above exmaples show that the customer is getting exactly what they were quoted 4k + VAT (see example 1). if the OP was marking up the materials then the price would come out higher than the agreed price!
    Last edited by JasonLVC; 04-10-2011 at 9:44 AM.
    Anger ruins joy, it steals the goodness of my mind. Forces me to say terrible things. Overcoming anger brings peace of mind, a mind without regret. If I overcome anger, I will be delightful and loved by everyone.
  • Radsteral
    right, the email i sent to hmr that stated ''we ll reply within 15 days'' came back pretty quick actually
    seem i am not doing anything wrong with the way i charge vat, and yes, for accounting purposes i have to seperate , whats materials, whats, vat and whats labour costs..so all right
    thank you for your replies , now i have to coppy paste a link of this forum to her and a copy of hmrc email and wait for my vat money
    • DCodd
    • By DCodd 5th Oct 11, 9:41 AM
    • 7,782 Posts
    • 10,572 Thanks
    DCodd
    Just to reiterate with regards to Materials on CIS invoices.

    HMRC tell contractors the following:

    Making deductions


    To make a deduction from a subcontractor's payment, start with the total - gross - amount of the subcontractor's invoice and then take away:
    • any VAT they've charged
    • the amount of any Construction Industry Training Board (CITB) levy they've paid
    Then take away the amount the subcontractor actually paid for each of the following (including VAT if they're not VAT registered):
    • materials
    • consumable stores
    • fuel used - except for travelling
    • plant hire
    • manufacturing or prefabricating materials
    Finally, apply either the standard or the higher rate percentage to the amount that's left to work out how much to deduct.
    http://www.hmrc.gov.uk/cis/contractors/advice-pay.htm
    Always get a Qualified opinion - My qualifications are that I am OLD and GRUMPY
  • Premier
    The customer is correct. ...
    Originally posted by Mistral001
    Only on the basis the customer is always right ... even in cases like this when the customer is entirely wrong

    The OP should be charging VAT on the total value of the supply. i.e. materials & labour

    The OP should be reclaiming VAT (assuming it was applied) on the materials purchased as input tax, but if the OP is selling the materials at 1000, then VAT must be added to that sale value.
    What price the OP buys at is irrelevant; VAT is charged on the sale value.
    So whether the OP is making 100% mark up, charging at cost or even making a loss on the materials supplied, the VAT the OP charges to the customer is the same. i.e. 20% of the sale price to the end customer

    (The input tax reclaimed by the OP will be the value of VAT paid by the OP in purchasing the materials initially. If the OP is charging materials at cost, then the VAT should be deducted from the ex-VAT cost of the materials before applying this to the clients bill. i.e. in this case, 1000 would be assumed to be the ex-VAT cost of the materials purchased. But the OP is free to charge materials at whatever price he likes ... and VAT is added to that price)
    Last edited by Premier; 06-10-2011 at 8:33 PM.
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  • Radsteral
    it seem Dcodd has sort of understood what i am talking
    if i work for private clients i normally tell him 4000+vat and the breakdown i did, its not aimed at him-- it aimed at me and my accountant which asks for material costs to be seperate from labour costs .
    being ci4 registred, if i worked for a company , on the labour costs i had to deduct 20%... so the bill would be 4000 +vat(20%) - 20% tax ,..

    I thought we here were a united front sorry for causing such a stirr! one poster costumer i right - next one costumer is wrong

    to calm down or, to add more to the fire i have coppy/paste the reply from hmrc , though i told the client, the quote accepted was for 4000 plus vat, if you find that i am ripping you off, here you got the hmrc number and ring them yourself . she s paid already


    --------------------------
    Dear Sir

    Accounting and charging VAT

    Thank you for your enquiry of 2 October 2011, regarding the above enquiry.

    I think your customer may have mis under stood the way VAT s charged and accounted for, you as the supplier may make purchases in the course of your business and as such you would account for these purchases on your VAT return as expenses. In the course of your supply to your customers you would need to supply materials to enable you to do the job and as such you would need to recover the cost of the materials plus your labour from your customer and account on your VAT return for this as a supply/sale charging VAT on the whole supply and paying this to HMRC.

    VAT is a sticking tax for private individuals and as such because they are not business they cannot reclaim the VAT charged as an expense unlike VAT registered businesses aslong as the items purchased are for the business.

    If you have any further queries regarding this matter, please submit your enquiry via our website, ensuring that you quote the case reference number at the top of this reply. Enquiries can be submitted by following the appropriate links on the VAT 'Contact us' page at www.hmrc.gov.uk

    Yours sincerely
    • DCodd
    • By DCodd 7th Oct 11, 5:19 PM
    • 7,782 Posts
    • 10,572 Thanks
    DCodd
    Radsteral, it is a complicated situation as we are unsure who is asking for the Materials breakdown.

    If your client is asking and they are a private individual (i.e. not a company) then they have no need or right to know how much the materials actually cost you. As long as you charge the agreed 4k + VAT then you, your client and HMRC are getting what they are entitled to.

    If your Client is a company then they are allowed to ask you how much you paid for the materials, not for VAT purposes but for CIS4 deduction purposes. You can still charge 4k + VAT as that is what your client agreed to, HMRC will still get the correct amount of money but for CIS purposes, if you paid 833.33 + VAT for the Materials then that is what you should show on the invoice. You then increase the Labour content to make it up to the total of 4k + VAT. You get a higher deduction (on 3166.67 of labour) but HMRC and your client get what they are entitled to.

    If it is your accountant that is asking for the breakdown then she may be asking for the actual amount of materials purchased to be able to work out your profit/earnings for the year for Income Tax purposes. You should be able to provide this by giving her your receipts for your purchases. Your invoices should always reflect what you charged the Customer and not what your accountant wants to see.

    In short, all the posts above are, in their own way correct. It is just that they are looking at the situation from a different point of view.
    Last edited by DCodd; 07-10-2011 at 5:22 PM.
    Always get a Qualified opinion - My qualifications are that I am OLD and GRUMPY
  • Radsteral
    i get the payments paid direct to my business account 99 per cent of times... it saves me lots off hastle and when i do my vat return, even my wife can match the invoice number with the money amounts that have come to the account from different clients as the payments come with names or invoice number- this is my ''great'' idea of dealing with the unnexpected, like it did on my first vat return 2 years ago
    printed my receipts and all i cound see was digits as almost all had paid by cheque... about 33 invoices then and 2 payments were never traced where they came in---i just slapped up one invoice on the name of george w bush, thinking if inland revenue asked for this i d tell them, that they still get the money..i just cant remember from who .

    so, when i finish the job i make up the invoice which contains my vat, utr,bank details and reference for payment and further down the breakdown
    seeing the breakdown she decided i was overcharging her, but as above i do this breakdown for my own purpose not for her.
    it never hapened before , this is the 800th invoice i issue
    • Mistral001
    • By Mistral001 7th Oct 11, 6:59 PM
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    Mistral001
    so, when i finish the job i make up the invoice which contains my vat, utr,bank details and reference for payment and further down the breakdown
    seeing the breakdown she decided i was overcharging her, but as above i do this breakdown for my own purpose not for her.
    it never hapened before , this is the 800th invoice i issue
    Originally posted by Radsteral
    I see now. I assumed that you were showing her the actual suppliers invoices for materials which would have had VAT added.
  • Radsteral
    yeah.. if i was that organised, i would have been an accountant!
    my wife checks my van every day for paperwork as i return home..the only thing that she says, cant be on my van is germs! she says , they wouldnt survive on that dirty van
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