Charging VAT

[Nat]

Hi all,

I am going to have to start charging VAT from next month and would like to hear from those who have done the same thing.

Did you find it a good or bad thing? Did you find some people were being put off by your prices with the VAT added? When pricing materials did you completely ignore the VAT and then add your mark up? Any ways you can put this to your advantage?

Obviously there are plenty of successful plumbing businesses out there who charge VAT but I am starting to worry I won't get any work!

Many thanks,

Nat

 

[CES]

I've been VAT registered since the word go. The myth about VAT registered business being more expensive and you wont get any work is a lot of rubbish. People don't buy on price alone, if this was the case we would all be driving Nissan Micras.
You will get people you will ask you to knock the VAT off for cash, dont be tempted as sods law you will get a VAT inspection. The taxman can't send you to jail remember, the VAT man can!
I price my jobs using my trade list, add my markup and then add VAT. I don't get every job but then again, neither does anyone else. Just make sure you claim the VAT back on everything you buy, remember this as there is some stuff you buy at 20% VAT and charge out at 5%.
If you get stuck, ask around, once you get into the swing of doing your return its not the hassle you first think it is.

 

[tamz]

So your time has come to join the ranks of the unpaid tax collectors :smile:

It has advantages and disadvantages but mainly disadvantages. You claim vat back on everything you buy and charge it on everything you sell including yourself.
It will make you a bit more expensive for private work as your labour charge is 20% higher.
How much higher your overall price has to be to make the same amount of profit varies with the amount of materials you supply. It make no difference if you do work for another vat registered business as they will claim it back.
You will undoubtedly loose out on some work.

Say a job costs £500 + vat for materials and you want £400 to fit it.
Unregistered your materials cost you £600 and your 400 labour = £1000
Registered, your materials cost 500 your labour 400 and your vat 180 = 1080 so your price for that job is 8% more expensive.

another job £250 + vat for materials materials and 700 labour unregistered = £1000 registered = £1140 14% more expensive.

 

[hammers4spanner]

I am on the verge of vat club and from what i gather from the info i have been given it depends on your type of work .If i end up going vat registered then i do expect to lose some work from private custs as labour will be at slight higher charge . However as i do alot of schools,colleges ,hospitals,offices etc etc being vat registered shouldnt make to much difference in my pricing as firms i price against are same boat .

 

[Nat]

So your time has come to join the ranks of the unpaid tax collectors :smile:

It has advantages and disadvantages but mainly disadvantages. You claim vat back on everything you buy and charge it on everything you sell including yourself.
It will make you a bit more expensive for private work as your labour charge is 20% higher.
How much higher your overall price has to be to make the same amount of profit varies with the amount of materials you supply. It make no difference if you do work for another vat registered business as they will claim it back.
You will undoubtedly loose out on some work.

Say a job costs £500 + vat for materials and you want £400 to fit it.
Unregistered your materials cost you £600 and your 400 labour = £1000
Registered, your materials cost 500 your labour 400 and your vat 180 = 1080 so your price for that job is 8% more expensive.

another job £250 + vat for materials materials and 700 labour unregistered = £1000 registered = £1140 14% more expensive.

Thanks Tamz. Sage advice as always.

You mentioned there are advantages. What would those be?

 

[Kev the gas]

Vans/tools and diesel become 20% cheaper over night !

 

[SimonG]

Mate of mine is vat registered and said the biggest plus is that his accounts are kept in better order due to the quarterly vat. Says it got him into a better routine to keep it all spot on.

 

[tamz]

The advantages are not many but as said everything you buy in the day to day running of your business will be 20% cheaper.
If you do new build stuff you will get a few grand back each quarter.
Apart from that it is all downhill :lol:

 

[hammers4spanner]

Would you say it benefits a business if your spending 9 grand a month on materials???

 

[SimonG]

If your spending 9k a month on mats alone then your turnover will be well over the vat threshold.