Any PH accountants, can you work this out.

[croyde]

Cheers guys.

A client paid me for 4 days work and weirdly, a first, paid me up front. £320 for the 1st day, a meeting, then 3 x £400 for the rest.

I fell ill after the 1st day so I got cover for the rest.

So the client paid me £1520 and I now have to pay someone else £1200. The problem being that the chap that did the job for me is VAT registered and I'm not.

Rough calculations seem to show me that I end up with no money and may even have to pay more out of my pocket.

I'm a sole trader so would put the £1200 down as an expense. In an ideal world I'd like to see at least £320 minus tax in my hand at the very least.

Thanks for any help.

Edited by croyde on Sunday 8th February 20:24

[Simpo Two]

IMHO you receive £1520 and have to pay £1200+20% = £1440. Your gross profit is £80

[marshalla]

Surely the £1200+VAT is the expense, since you're not registered for VAT ?

[croyde]

Yep you're right. Still only 80 quid profit

[Claudia Skies]

Yes, unfortunately it looks like "profit" of £80

[Countdown]

croyde said:

Cheers guys.

A client paid me for 4 days work and weirdly, a first, paid me up front. £320 for the 1st day, a meeting, then 3 x £400 for the rest.

I fell ill after the 1st day so I got cover for the rest.

So the client paid me £1520 and I now have to pay someone else £1200. The problem being that the chap that did the job for me is VAT registered and I'm not.

Rough calculations seem to show me that I end up with no money and may even have to pay more out of my pocket.

I'm a sole trader so would put the £1200 down as an expense. In an ideal world I'd like to see at least £320 minus tax in my hand at the very least.

Thanks for any help.

Edited by croyde on Sunday 8th February 20:24

Is your client VAT registered? Could your mate bill him direct? Obvs you'd have to give him £1200 back.

[Simpo Two]

If your clients are VAT registered then you could register as well. It will make no difference to your ultimate price to them as they will simply reclaim the VAT element. And then, if you ever need to sub stuff out, you can use VAT registered suppliers and not have your margin knackered by VAT.

Alternatively you could try to find non VAT-registered backup.

Countdown said:

Is your client VAT registered? Could your mate bill him direct?

But then the OP would have to refund the £1520, and lose the £80, and probably a client too.

[croyde]

Yep! I don't think the client is too happy with paying me up front and then me getting sick. Was serious btw.

Wants me to sort the payment. Looks like to stay above board I'll just have to take the hit.

[Simpo Two]

You mean he wants his money back? If the work was completed to the standard agreed then I can't see he has much of a leg to stand on. You didn't do the work yourself but you found a substitute who did. So Client has paid the agreed sum for the agreed service (we hope).

You couldn't help getting sick. No doubt Client is sick sometimes too, and has some time off too. Did you demand money up front or did he offer it?

There's a high chance your stand-in has slipped him a business card anyway, and is cheaper, so assuming he did the job OK then the chances are you've lost the client anyway. In which case, why make concessions? Keep the £80!

[croyde]

He doesn't want the money back, I did offer. Just wants me to sort it out.

I just didn't think about the fact that my colleague that replaced me is VAT registered.

[croyde]

He doesn't want the money back, I did offer. Just wants me to sort it out.

I just didn't think about the fact that my colleague that replaced me is VAT registered.

[anonymous-user]

I would just take it on the chin and learn a lesson from it.

The important thing is that you didn't let the client down, so hopefully they'll use you again.

[Simpo Two]

croyde said:

Just wants me to sort it out.

What is there to sort out? What does 'wants me to sort the payment' mean? Has the deputy sent his £1440 bill to the client?

[croyde]

Nothing that complicated. Client has paid me in full and would rather I dealt with paying my deputy.

ie Doesn't want me to return the money for them to then pay me a day and the other guy 3 days. As I had left them in the lurch until my guy stepped in, I feel that I can't really cause them any more admin or whatever.

As a previous poster has said, I'll just take it on the chin.

[Doctor Volt]

Surely if HSBC can do it you can do it

[fid]

Can't the substitute be a sole trader for this transaction?

[croyde]

Once VAT registered you have to charge VAT on all invoices.

[mjb1]

croyde said:

Once VAT registered you have to charge VAT on all invoices.

Well, you can't have it both ways, comes down to how many of your clients are not vat registered, whether they'd be prepared to take a 20% price hike, you're prepared to loose them, or whether you lower your price to meet them somewhere in the middle.

You should have checked you're substitutes rate (inc. the VAT) before you enlisted him, perhaps negotiated a discount if necessary. But to be fair, you got out of doing the work you subbed out to him, so you presumably incurred no overheads or expenses for the days you didn't do. So look at it another way - you're £80 up for doing FA.

[fid]

croyde said:

Once VAT registered you have to charge VAT on all invoices.

but you can run two business, one VAT registered and one not...

[croyde]

Ah, but he only has the one. Sole trader like me but VAT registered to take advantage of the flat rate system. Collects at 20% but only pays HMRC just over half, I believe.

Has to pay income tax on what he keeps.