Reduced rate of vat

[southcoastboile]

On certain energy saying products the vat rate changes. I think some items are as little as 5%.

I currently get charged 20% on everything I purchase at the merchants regardless weather or not it is an energy saving item.

i then charge the customer 20% vat and that goes to hmrc.

just wanted to confirm that if I were to purchase say a boiler and room stat/trvs and they qualify for the lower rate of vat I could keep my quote the same say £2k and then invoice the customer showing the reduced rate of vat. Bear in mind I would have paid 20% at the merchants would I be better off?

 

[Ray Stafford]

On certain energy saying products the vat rate changes. I think some items are as little as 5%.

I currently get charged 20% on everything I purchase at the merchants regardless weather or not it is an energy saving item.

i then charge the customer 20% vat and that goes to hmrc.

just wanted to confirm that if I were to purchase say a boiler and room stat/trvs and they qualify for the lower rate of vat I could keep my quote the same say £2k and then invoice the customer showing the reduced rate of vat. Bear in mind I would have paid 20% at the merchants would I be better off?

It doesnt matter what you pay your merchant.

Every penny of VAT you pay your suppliers, you claim back.

Every penny of VAT you charge your customers, you have to give to HMRC.

Its profit-neutral to you (apart from a small effect on your cashflow).

 

[southcoastboile]

Thanks ray. If the supplier had charged me the reduced rate it would be profit neutral but they charge 20% and I would charge the customer 5% ......or have I got that wrong?

 

[Ray Stafford]

Thanks ray. If the supplier had charged me the reduced rate it would be profit neutral but they charge 20% and I would charge the customer 5% ......or have I got that wrong?

Imagine you buy something for £100 net of vat.

Your supplier charges you VAT at 20% so you pay £120.

You charge your customer £150 + VAT at 5% = £157.50

If this was your only transaction for VAT in that period, your VAT return would be:

VAT Output (charged to customers) £7.50
VAT Input (charged by suppliers) £20.00

So you would claim a rebate from the VAT-man of £12.50

You have paid £120, and received £170, (£157.50 from customer and £12.50 VAT refund) which is a profit of £50.

If your supplier had charged you VAT at 5%, you would only have paid £105, but your VAT return would have been

VAT Output £7.50
VAT Input £5.00

Payment to VAT-man of £2.50

So you have received £157.50, and paid £107.50 (£105 to supplier and £2.50 to VAT man) so your profit is still £50.

It all evens out, apart from a slight pain in the cashflow, because you probably have to pay your supplier before you get your VAT refund.

 

[southcoastboile]

Okay I get that. Thanks mate

 

[Leo21]

Okay I get that. Thanks mate

Glad you did! It's all gobbledygook to me.

 

[Nostrum]

Boilers don't qualify for 5% vat, energy saving controls do. Suppliers have to charge 20% as a material, the legislation allows you to charge 5% on installed energy saving measures.

Its a bit of a minefield unless you install renewables where you can charge 5% on it all (materials & labour) but get it wrong and you are out of pocket.

We charge 5% on new heating controls only but not if they are installed with a new boiler.

You can look at corgivatsaver who have some algorithm to calculate it in more detail including a percentage for the energy saving controls within the boiler somehow, but they take slice and leave you with all liability.

 

[Ray Stafford]

I think some boilers qualify. IIRC, biomass boilers and micro CHP units count for the lower rate, but not ordinary gas or oil boilers.

 

[village idiot]

Ray has nailed it perfectly.
Trouble is: too many trades or businesses are of the opinion that the 'cash' collected as VAT is theirs and they see no reason why the tax man should have it (or all of it?). Truth is all VAT transactions are carried out on behalf of the tax man.
For businesses that are VAT registered but spend more in VAT (eg buy loads of machinery and tools) than they charge or receive, they will always get a cheque from HMRV every quarter

 

[Nostrum]

I think some boilers qualify. IIRC, biomass boilers and micro CHP units count for the lower rate, but not ordinary gas or oil boilers.

Biomass is renewable, not sure if non renewable CHP counts or not?

I tried out corgivatsaver but was put off by the liability I was taking on, so only did one job through it.

I then looked into the legislation myself but didn't have a legal team to fall back on so abandoned the idea of taking on the VAT man.

There was another very similar scheme (possibly run by the same people) that was contested by HMRC. There was info on the web suggesting that businesses went bankrupt over the VAT they owed by using the scheme and being pulled for on a VAT inspection. All sounded to risky to me.

 

[Dannyboygas]

I too did one job through the corgi vat saver and after talking to the guy on the phone and reading up on here I steered clear of it. I mentioned it to my accountant (who is a good one) and he hadn't heard of it, he also warned to stay clear. He does the books for a large number of plumbers and heating engineers, from one man bands to 7/8 engineer outfits with various office staff, not one of them had heard of it. Could be great but as above said I wouldn't want to take on the vat man. Corgi guy said to me 'don't put the % on your invoice at 20. Just put total including vat. After our commission you end up with a good chunk of profit'. Seemed very sinister and possibly fraudulent somewhere along the line.

 

[Kev the gas]

Just b4 the end of my vat quarter I pay all my accounts, ie last month I paid Williams Feb account on the 25 th. By doing this I can give my company 3 monthly health checks and I can see exactly what money is mine.

 

[southcoastboile]

Corgi vat saver is what prompted my question in the first place.

aparantly Hmrc are saying that what the vat saver does is not allowed because you can't put through more than one energy saving device at a a time, if you fit just a room stat or just a trv it would be fine at 5% but not if you are supplying a package with several bits. So from the sound of it if you did the vat saver and get investigated you would end up with the liability and owe them all of that vat, plus you would have paid for corgi vat saver fees. That's why a lot of companies say they have gone bust because of it. I think it went to court and Hmrc won. I was contacted by corgi yesterday about it. I'm definitely not good to use it

 

[Ray Stafford]

Here is chapter and verse from HMRC.

Its actually quite a well written document, bearing in mind its a government regulation.

 

[plumb_know]

I Know this is an old post, but i am going VAT registered at the end of this month and trying to get my head round it, thanks to RAY post earlier in this thread i have a clearer understanding.

But i am just wondering what is the reason of charging VAT on labour once you reach the threshold, seems double standards to me why does every one not pay it from the start or no one pay it until the end of the year like a sole trader?

Also after advice from anyone currently VAT registered on any tips how they stayed competitive once VAT registered as i will now be 20% more expensive?

Help appreciated

 

[plumb_know]

I Know this is an old post, but i am going VAT registered at the end of this month and trying to get my head round it, thanks to RAY post earlier in this thread i have a clearer understanding.

But i am just wondering what is the reason of charging VAT on labour once you reach the threshold, seems double standards to me why does every one not pay it from the start or no one pay it until the end of the year like a sole trader?

Also after advice from anyone currently VAT registered on any tips how they stayed competitive once VAT registered as i will now be 20% more expensive?

Help appreciated

 

[Last Plumber]

My Company has always been VAT registered and it is seldom a problem.

Very few mention it and you'll probably find most people in a similar position to yourself, charge VAT anyway.

There are for's and against's but if I had to make a choice I wouldn't change things !

 

[Ray Stafford]

Also after advice from anyone currently VAT registered on any tips how they stayed competitive once VAT registered as i will now be 20% more expensive?

Help appreciated

You shouldn't be 20% more expensive.

On materials, your competitive situation will be the same as before for private (ie non-vat registered customers) but you will be cheaper if you work for VAT registered businesses as you will be able to give them a VAT invoice on materials that you supply and they will be able to reclaim the vat on materials, which at present they can't.

On labour, your competitive situation will the same as before when dealing with VAT registered customers, but 20% dearer when dealing with private, non-VAT registered customers.

On your overheads, you will now have the opportunity to reclaim VAT on some (not all) costs that you were not able to reclaim in the past. Check this over with your accountant. This should help counter-act the labour price to private customers mentioned above.

You have the intangible benefit of appearing to be a more substantial business. How valuable this is depends on what sort of customer base you have (or rather, what sort customer base you want to have).

Finally, you have the warm fuzzy feeling deep inside which all citizens experience when paying tax, or helping the government run the tax system without being paid for the admin. I find it helps to dwell at length on how wisely our elected politicians spend the money.

</irony>

 

[quality]

I will not mention my rates bill this year