Discussion
With the ever increasing cost of materials for the work I do, I think it's likely VAT registration will be looming soon. As a sole trader on the tools, I've never intended to build a business, just earn an income. I have used sub contractors for some years. They supply their own tools, materials and vehicles and I provide them with work that they are responsible for. The customer pays them directly and I make on top. So far, this has worked well with clients quite happy to accept as long as I am in control and monitor the work. I am also on the tools doing the work of my own. The lead time on work is generally 3 - 6 months, and because of the length of that time, I don't know whether I'll be on a job I've priced or the lads. The contractors are not VAT registered and I very much doubt they will want to be. So here's the big 2 part question: How can I price a job to include VAT if the customer pays the contractors directly and therefore my mark up is truly the only VATable part? I'm happy to disclose my mark up to customers and to a point think they trust me because of how open I am with them. Most people recognise I'm not a charity. Part 2 of the question is: Because I'm on half the jobs myself, those customers would be paying a significantly higher amount of VAT because I'm the registered one. In effect I'll be pricing myself out of my own work! How on earth can I find a pricing solution to both?
Are you going to hit the VAT registration threshold because of the labout you supply or because you supply materials as well? If it's because of the materials is there any scope for the customer buying them & supplying them to you? I know some kitchen & bathroom fitters work this way to stay below the VAT threshold.
Mr Pointy said:
Are you going to hit the VAT registration threshold because of the labout you supply or because you supply materials as well? If it's because of the materials is there any scope for the customer buying them & supplying them to you? I know some kitchen & bathroom fitters work this way to stay below the VAT threshold.
Sadly the majority is labour. I guess about 25% is for materials that are unavoidable. The main items I do get the client to provide, and dangle the carrot of my trade discounts through my suppliers for them. I have thought about processing the main items through me if it helped from a VAT perspective, but there's no scope for profit these days and it would then make me responsible as the seller. That's not great if there's no profit. (that's the internet for you!)To be honest, I think I've streamlined it as best I can already, but the VAT threshold remaining static and costs forever increasing, I can't be alone in being forced into almost shutting down!!
You need to speak to your accountant then, there may be some way to split what you do from what you provide.
Flashheart's Contracts Management Ltd
Lord Flashheart Contractor
Flashheart's Supplies Ltd
It will need to be looked at professionally as the VAT man may simply say all companies are intrinsically linked and you're avoiding VAT registration by gaming the system.
I'm seeing it more and more but usually with regards to materials, they want to make the margin but not accept the turnover risk.
Flashheart's Contracts Management Ltd
Lord Flashheart Contractor
Flashheart's Supplies Ltd
It will need to be looked at professionally as the VAT man may simply say all companies are intrinsically linked and you're avoiding VAT registration by gaming the system.
I'm seeing it more and more but usually with regards to materials, they want to make the margin but not accept the turnover risk.
LaurasOtherHalf said:
You need to speak to your accountant then, there may be some way to split what you do from what you provide.
Flashheart's Contracts Management Ltd
Lord Flashheart Contractor
Flashheart's Supplies Ltd
It will need to be looked at professionally as the VAT man may simply say all companies are intrinsically linked and you're avoiding VAT registration by gaming the system.
I'm seeing it more and more but usually with regards to materials, they want to make the margin but not accept the turnover risk.
I think this is correct. The VAT man will just see it as avoiding registration and I have to find a way to continue on and be VAT registered or take a pay cut, which isn't ideal when everything around us is on the increase!Flashheart's Contracts Management Ltd
Lord Flashheart Contractor
Flashheart's Supplies Ltd
It will need to be looked at professionally as the VAT man may simply say all companies are intrinsically linked and you're avoiding VAT registration by gaming the system.
I'm seeing it more and more but usually with regards to materials, they want to make the margin but not accept the turnover risk.
Lord Flashheart said:
LaurasOtherHalf said:
You need to speak to your accountant then, there may be some way to split what you do from what you provide.
Flashheart's Contracts Management Ltd
Lord Flashheart Contractor
Flashheart's Supplies Ltd
It will need to be looked at professionally as the VAT man may simply say all companies are intrinsically linked and you're avoiding VAT registration by gaming the system.
I'm seeing it more and more but usually with regards to materials, they want to make the margin but not accept the turnover risk.
I think this is correct. The VAT man will just see it as avoiding registration and I have to find a way to continue on and be VAT registered or take a pay cut, which isn't ideal when everything around us is on the increase!Flashheart's Contracts Management Ltd
Lord Flashheart Contractor
Flashheart's Supplies Ltd
It will need to be looked at professionally as the VAT man may simply say all companies are intrinsically linked and you're avoiding VAT registration by gaming the system.
I'm seeing it more and more but usually with regards to materials, they want to make the margin but not accept the turnover risk.
Ask yourself why you're popular. Is it because a local building firm would be charging thousands of pounds more for effectively the same service as you and your band of merry contractors? Would the 20% increase in labour wipe out that advantage?
For ref, prior to VAT registration (when I was doing solely renovation works rather than new build) I simply made the customer reconcile the invoices at the end of each month during our progress meetings. I didn't make on any materials but the fact that they got everything at trade meant I was still keeping them happy!
All materials were kept at one supplier and all invoices marked with their job ref, it wasn't difficult. If it meant they had to buy an expensive bag of plaster because TPs were a £1 a bag more than the special offer at Doves so be it-they easily won out in the end.
LaurasOtherHalf said:
Lord Flashheart said:
LaurasOtherHalf said:
You need to speak to your accountant then, there may be some way to split what you do from what you provide.
Flashheart's Contracts Management Ltd
Lord Flashheart Contractor
Flashheart's Supplies Ltd
It will need to be looked at professionally as the VAT man may simply say all companies are intrinsically linked and you're avoiding VAT registration by gaming the system.
I'm seeing it more and more but usually with regards to materials, they want to make the margin but not accept the turnover risk.
I think this is correct. The VAT man will just see it as avoiding registration and I have to find a way to continue on and be VAT registered or take a pay cut, which isn't ideal when everything around us is on the increase!Flashheart's Contracts Management Ltd
Lord Flashheart Contractor
Flashheart's Supplies Ltd
It will need to be looked at professionally as the VAT man may simply say all companies are intrinsically linked and you're avoiding VAT registration by gaming the system.
I'm seeing it more and more but usually with regards to materials, they want to make the margin but not accept the turnover risk.
Ask yourself why you're popular. Is it because a local building firm would be charging thousands of pounds more for effectively the same service as you and your band of merry contractors? Would the 20% increase in labour wipe out that advantage?
For ref, prior to VAT registration (when I was doing solely renovation works rather than new build) I simply made the customer reconcile the invoices at the end of each month during our progress meetings. I didn't make on any materials but the fact that they got everything at trade meant I was still keeping them happy!
All materials were kept at one supplier and all invoices marked with their job ref, it wasn't difficult. If it meant they had to buy an expensive bag of plaster because TPs were a £1 a bag more than the special offer at Doves so be it-they easily won out in the end.
You've got to decide what you are, either
a) A paid supervisor, or
b) The main contractor
and everything else will flow from that.
No, you can't sidestep VAT registration by fragmenting one business into smaller parts.
However, I think you could have two separate and different businesses - so long as they were truly separate. But from what you've described that sounds unlikely. You'd need an incredible level of discipline and you'd have to avoid customers/suppliers getting confused.
a) A paid supervisor, or
b) The main contractor
and everything else will flow from that.
No, you can't sidestep VAT registration by fragmenting one business into smaller parts.
However, I think you could have two separate and different businesses - so long as they were truly separate. But from what you've described that sounds unlikely. You'd need an incredible level of discipline and you'd have to avoid customers/suppliers getting confused.
springfan62 said:
If you are working on new build residential projects they will be zero rated for most things, from what you say most is new build now as opposed to restoration.
Perhaps you could clarify what you are doing/supplying.
My guess is Lord Flashy is providing a service to private individuals (B2C) rather than Businesses (B2B). If it was the latter then they would be able to reclaim any VAT the OP charged and therefore having to charge VAT would be less of an issue.Perhaps you could clarify what you are doing/supplying.
A couple of family members have the same issue. they aren't able to reclaim VAT on their inputs and most of their cost is Labour which they have to charge 20% on. It makes it hard to compete with Individuals who just don't bother with VAT.
Countdown said:
springfan62 said:
If you are working on new build residential projects they will be zero rated for most things, from what you say most is new build now as opposed to restoration.
Perhaps you could clarify what you are doing/supplying.
My guess is Lord Flashy is providing a service to private individuals (B2C) rather than Businesses (B2B). If it was the latter then they would be able to reclaim any VAT the OP charged and therefore having to charge VAT would be less of an issue.Perhaps you could clarify what you are doing/supplying.
A couple of family members have the same issue. they aren't able to reclaim VAT on their inputs and most of their cost is Labour which they have to charge 20% on. It makes it hard to compete with Individuals who just don't bother with VAT.
There might be an opportunity to use the business model I came up with Flashheart, it's a slightly different way of doing things. Don't mind going through it in a phone call if you like through the week.
All above board and fine in the eyes of the VAT man, as I touched on above however it does involve marketing yourself as a "project manager" or suchlike.
The customers I've done it for absolutely loved this method and it worked very simply while saving them a massive amount on what it would have cost a traditional building company to do it. Last one was a reno in Keswick that ended up costing them (IIRC) £86k against the cheapest quote of just under £130k.
All above board and fine in the eyes of the VAT man, as I touched on above however it does involve marketing yourself as a "project manager" or suchlike.
The customers I've done it for absolutely loved this method and it worked very simply while saving them a massive amount on what it would have cost a traditional building company to do it. Last one was a reno in Keswick that ended up costing them (IIRC) £86k against the cheapest quote of just under £130k.
Douglas Quaid said:
Can’t you just charge them vat regardless of who is doing the job? Just give them a price including vat and either you do it or you have your guys do it. Customer pays you and you pay your subbies. What’s the issue?
The customer can't be charged VAT by me on work carried out by non VAT registered people they pay directly. If I charge VAT and pay my subbies directly, it's highly likely I'll fall foul of IR35. LaurasOtherHalf said:
There might be an opportunity to use the business model I came up with Flashheart, it's a slightly different way of doing things. Don't mind going through it in a phone call if you like through the week.
All above board and fine in the eyes of the VAT man, as I touched on above however it does involve marketing yourself as a "project manager" or suchlike.
The customers I've done it for absolutely loved this method and it worked very simply while saving them a massive amount on what it would have cost a traditional building company to do it. Last one was a reno in Keswick that ended up costing them (IIRC) £86k against the cheapest quote of just under £130k.
I'd definitely be interested to hear how you're running your business model. My method has never been questioned to date and I've had tax inspections that would have thrown up issues if there were any. But now with IR35 and VAT looming for me, something needs to change. Feel free to pm me your name and number and I'll text you to arrange a call. All above board and fine in the eyes of the VAT man, as I touched on above however it does involve marketing yourself as a "project manager" or suchlike.
The customers I've done it for absolutely loved this method and it worked very simply while saving them a massive amount on what it would have cost a traditional building company to do it. Last one was a reno in Keswick that ended up costing them (IIRC) £86k against the cheapest quote of just under £130k.
Lord Flashheart said:
Douglas Quaid said:
Can’t you just charge them vat regardless of who is doing the job? Just give them a price including vat and either you do it or you have your guys do it. Customer pays you and you pay your subbies. What’s the issue?
The customer can't be charged VAT by me on work carried out by non VAT registered people they pay directly. If I charge VAT and pay my subbies directly, it's highly likely I'll fall foul of IR35. HMRC VAT 700 section 22 provides more information, and you would need to ensure your documentation clearly delineates who each supply is with and that you are only an agent (disclosed) for some part of the transaction.
gumshoe said:
Lord Flashheart said:
Douglas Quaid said:
Can’t you just charge them vat regardless of who is doing the job? Just give them a price including vat and either you do it or you have your guys do it. Customer pays you and you pay your subbies. What’s the issue?
The customer can't be charged VAT by me on work carried out by non VAT registered people they pay directly. If I charge VAT and pay my subbies directly, it's highly likely I'll fall foul of IR35. HMRC VAT 700 section 22 provides more information, and you would need to ensure your documentation clearly delineates who each supply is with and that you are only an agent (disclosed) for some part of the transaction.
Getting a customer to pay for goods organised by the contractor doesn’t necessarily mean the goods were not supplied to the contractor and then supplied by the contractor to the customer - at the end of the day who is the builder’s merchant going to come after if they don’t get paid.
And something really really important to keep in mind is there is *no* time limit on HMRC backdating VAT registrations - they can backdate a registration all the way back as far as 1973 if someone should have been registered but wasn’t *and* ask for the VAT that should have been paid from 1973.
So whatever idea you have to avoid registration then it is a hell of a good idea to get professional advice about whether it actually works.
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