Advice please on Business ethics & VAT.

[Delvard]

Hi everyone,
Started my own business a few months ago. Had quite a promising start, learning new things along the way and think it really is going to work out.
Recently I was asked to quote for work on a new building in the commercial sector. A buyer for a building company asked me for a quote. I offered one and was delighted when it was accepted. I surveyed the site today and the job shouldn't be too difficult.
However.
Because the business is quite new I've had no need to vat register. 99% of my work has been in homes so I've always offered a fully inclusive price.
I did the same with the building company but now I'm a little concerned he may have thought it included vat and so would be able to claim it back.
What do I do? I don't want to lose the business but at the same time I don't want to come across as somehow unprofessional because I'm not vat registered.
Instead of feeling delighted with this large order I'm starting to feel stressed and I'm wondering what to do.
Suggestions please?

[clapham993]

Andrew

My strong advice is get VAT registered as soon as possible. It not only has significant benefits for you - VAT reclaim etc - but in our industry HM Customs & Excise are always looking for VAT irregularities.

With regards to your immediate situation, I would be absolutely truthful and up-front now; it is unlikely to cause a problem at this stage (post trade package tender but pre S/O/S by the sound of it) but it will become a major issue when, a month into the job, the main contractor's measurement surveyor picks up that your interim application does not have a VAT component.

Hope this helps

Peter

[Size Nine Elm]

Delvard said:

I did the same with the building company but now I'm a little concerned he may have thought it included vat and so would be able to claim it back.

Almost any quote for any services in any business are ex VAT unless you are in a retail business.

I'd just phone and clarify the situation, I doubt if there would be an issue.

Edited to add: one reason to register for VAT even if you are below the VAT threshold is for credibility. If you are not VAT registered there is an assumption you are a one-man band and not a 'real' company.

>> Edited by Size Nine Elm on Tuesday 13th April 19:29

[Delvard]

Thanks for both replies. A big help.
I'll speak to him in the morning and let you know how I went on.

[Eric Mc]

If you are registered for VAT, it is normal to quote your VAT Number on invoices, quotes and general stationery (in fact, it is compulsory on invoices). As you will not have shown a VAT number, he should have realised you are not VAT registered.

He cannot claim back VAT on your invoices unless you are can qoute quote a VAT number on your invoice.

[JonRB]

I have a similar situation with a supplier like yourself who is not VAT-registered.

Obviously I can't claim the VAT back on it as there is no VAT. However, the annoying thing is that I can resell / reassign / sub-let (call it what you will) the service but since my company is VAT-registered I will have to charge VAT on it.

Edit: One thing I would say is that your client will have assumed that your price is exclusive of VAT, since they would claim any VAT on top of that price back. You just need to tell them that there is no VAT chargeable on the amount as you are not VAT registered. This will not change the price that they are expecting to pay since when you are a VAT registered company you always deal in ex VAT prices. VAT is neither here nor there on allowable expenses as you will always claim the VAT back. I keep having to lecture my wife on this when she insists on looking at the VAT-inclusive price on computer hardware ("you want to spend HOW MUCH on some kit?") and I keep having to tell her to ignore the inc-VAT price and look at the ex-VAT price as we effectively don't pay the VAT as we claim it back.

>> Edited by JonRB on Wednesday 14th April 10:22

[simpo two]

IMHO (and assuming you are below the threshold for compulsory VAT registration) you need to consider two things.
1) How much stuff do you buy in for the business?
2) What proportion of your customers are VAT registered?

If all or most of your customers are VAT registered, you may as well register too so you can claim back the VAT on materials (they reclaim VAT anyway so they don't care if you're registered or not - though the credibility factor might be important to you).

By contrast, if most of your work is fee-based and your customers are individuals, by staying unregistered your prices to them will be cheaper.

[Delvard]

All went fine when I spoke to my client hew:
He had assumed the prices I'd quoted where + vat.
So no problems there. Just need to get over my paranoia.....
I am below the threshold. Wouldn't consider for a moment doing anything dodgy. I haven't the time or the inclination. It's tricky though. I prefer the commercial work to domestic. However domestic accounts for 80% of my current trade so it wouldn't be sensible at the moment to volunteer for vat registration, but I do see it coming sooner rather that later.

[simpo two]

Delvard said:

Wouldn't consider for a moment doing anything dodgy... However domestic accounts for 80% of my current trade so it wouldn't be sensible at the moment to volunteer for vat registration, but I do see it coming sooner rather that later.

Yep, don't piss off HMC&E - I think they have powers to break into your house and steal/search anything. Much nastier than the IR, but sweet as pie if you play by the rules. If you have a VAT Q, ring them up: they can hardly argue with that later!

I think your idea of keeping a watching brief is good - see how it goes. Do some sums every quarter to see if you'd be winning or losing by registering. When it gets to 'win', switch over. The paperwork is just two extra columns, one for VAT in and one for VAT out. (though EricMC is welcome to point out the error in my simplification!)

[Eric Mc]

The basics of operating VAT are not that difficult but (and it is a very big but) the devil really is in the detail. VAT legislation is extremely complex and there are all sorts of schemes which may or may not be applicable to your business.

Be very wary of accepting verbal advice (whether via telephone or person to person) from a VAT officer. They will not stand by any advice given in that manner - and you cannot rely on the acceptance of such verbal advice as a defence. The only advice you can rely on is a written "ruling" from a VAT office. Even if it is wrong, at least you can hold it up in court and use it as evidence if needed.

[simpo two]

Eric Mc said:

Be very wary of accepting verbal advice (whether via telephone or person to person) from a VAT officer. They will not stand by any advice given in that manner - and you cannot rely on the acceptance of such verbal advice as a defence.

Very good point - get it in writing.

[Liszt]

I found VAT a doddle for a small 1 man company.

Just deal with the VAT people in writing.
Works out useful for registering with Trade only suppliers as well.

[Eric Mc]

As I said, the basic principles of VAT are not too complicated. However, like all taxes, there are pitfalls and trapdoors that one can fall into which can prove costly if you are not careful.