I am recently vat registered, i sometimes have electricians / gas guys etc do jobs for me, if i earn £1000 out of the job, then my gas guy charges me £400 do i pay the vat on the £1000 or just the £600 profit i made ?
It makes no difference to you VAT-wise (assuming you aren't supplying exempt or paritally exempt services) BUT it may make a difference to your customer, depending on whether or not they are VAT registered.
Just to illustrate, based on the figures you've said: 1) If you invoice £1,000+VAT of £200=£1,200 and you pay your contractor £400, then your profit is £600 (and you will pay the £200 VAT to HMRC) (and your customer pays you a total of £1200 incl VAT of £200).
2) However, if you invoice £600+VAT of £120= £720, so your profit is still £600 but the customer pays the £400 directly to the sub. (Then your customer will only have to pay £720+£400=£1120 incl VAT of £120)
So, in (1), you would pay £200 in VAT to HMRC, but you would have received £200 of VAT from your customer. In (2), you would only pay £120 in VAT to HMRC, but you would only have received £120 of VAT from your customer.
are not the sub contractors contracted to your business rather than your clients.
The sub contractors would need to make their arrangements directly with the client and invoice / be paid directly by them cutting you (and presumably your percentage cut for their work) out of the loop.
If your client realises that the subcontractors are independant rather than employed by you directly would they not then just shop around for a better deal rather than the all in package that they currently believe that they have?
As Louise states, either way you get the same money but in alternative (2) the client, not you is a little better off and for that you mat be risking the contract?
If the client is VAT registered anyway then this isn't even worth thinging about and you just go down the £1000 +VAT route.
If they are not VAT registered and the VAT will not affect their choice of using your services then again, the first route is preferable.
Only where they are not VAT registered (so cannot reclaim the VAT... Assuming that t he work is reclaimable) and the difference will sway the the clients decision to use your services would I contemplate the alternative of them hiring contractors directly rather than via yourself.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
If your client bypasses you and deals with the subcontractor seperately, then they will have to deal with any complaints about their work (if it ever happens). If you charge the customer for the entire package, then you are responsible for the work of the subcontractor, and responsible for any rectification work.
It sounds like you are in the construction industry, so there are two other points to consider.
First point is you may have to operate CIS if you subcontract trades in.
Second point is, if you carry out any work on a new build construction for an individual, then you should zero rate all your supplies to the client.
Bill
Edit: Spelling errors
-- Edited by Wella on Tuesday 2nd of August 2011 01:01:54 PM
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Compared to Rob's "There or there abouts" methodology I think that we're both pedants Bill!
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I have one major offender who not only uses 4,000,000 staples (and that's not an exaggeration) for each batch of unrelated paperwork, he also likes to write 3 pages of notes to go with it (also stapled) and glue newspaper cuttings he thinks are relevant (normally relating to immigration or the economy), plus send copies of some tax advice publication from anywhere since 2004 onwards in order to 'guide' me towards the outcome he would like.
Drives me to drink....
__________________
Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
)
Glad I'm not the only one!
