VAT. Revenue Confused Me

goz83

Hi. I have a little maintenance business doing odd jobs and registered for VAT because of a small public contract. I am however confused about VAT and I am not sure revenue gave me the right information (sounds odd perhaps). I asked:

ME: "If I buy materials, I assume I pass the 21% VAT to the client and then charge 13% for the labour, yes?"

REVENUE: "Just charge 13.5% percent on the whole lot"

ME: "But I would be losing 7.5% on the materials if I do that"

REVENUE: "No. Add 13.5% onto the full material cost".

I went through the scenario twice with the guy and I am sure this is what he meant. Does this make sense? Not to me it doesn't. Should I not be charging two VAT amounts?

1) 21% for materials
2) 13.5% for labour and then combing them into a total VAT amount on the invoices/quotes.

Help appreciated to clear this up. Charging 13.5% on everything would be raping the customers and would make my company way more expensive. The customers would be better to supply their own materials at that rate.

bpb101

goz83 wrote: »

Hi. I have a little maintenance business doing odd jobs and registered for VAT because of a small public contract. I am however confused about VAT and I am not sure revenue gave me the right information (sounds odd perhaps). I asked:

ME: "If I buy materials, I assume I pass the 21% VAT to the client and then charge 13% for the labour, yes?"

REVENUE: "Just charge 13.5% percent on the whole lot"

ME: "But I would be losing 7.5% on the materials if I do that"

REVENUE: "No. Add 13.5% onto the full material cost".

I went through the scenario twice with the guy and I am sure this is what he meant. Does this make sense? Not to me it doesn't. Should I not be charging two VAT amounts?

1) 21% for materials
2) 13.5% for labour

Help appreciated to clear this up. Charging 13.5% on everything would be raping the customers and would make my company way more expensive. The customers would be better to supply their own materials at that rate.

i think . *think* you clam the vat back for material you bought and part of your bill to the customer is 21 % of the price you selling the material at to them ( you might charge the customer €5 for a €2.50 .... clock (dosent matter what)
and 13.5% for labour

think of a mc donnels recipte
it 13.5 % (now 9 %) for the food and 21 % for the coca cola

im not qualify to answer so somebody else should that know but i think im right

theg81der

http://www.boards.ie/vbulletin/showthread.php?t=290363 found this thread which may explain it.

goz83

theg81der wrote: »

http://www.boards.ie/vbulletin/showthread.php?t=290363 found this thread which may explain it.

Thanks, but that thread doesn't really answer it either. OK I know I can claim back the 21% VAT for materials and the 13.5% charged to the client will be paid to revenue in a VAT return, but it doesn't make any sense to charge 13.5% VAT ON TOP of the 21% VAT they are already paying for the materials. The client is already being charged 21% VAT for the materials and should only be charged 13.5% for the service, no?

If this were to be true, it makes no sense for the client to allow the service provider purchase the materials. Every €1 will cost them an extra 13.5 cent. It also leaves a potential cost open to the service provider for jobs requiring little labour, but high material cost. For example; Miss Jones sees a statue in the garden centre for €2,000 including VAT (€1652.89 ex vat) and asks that I pick it up and put it in her garden. The cost of labour is €113.50 including 13.5% VAT. If I charged a blanket VAT rate of 13.5% on ex vat price €1752.89, the invoice would show only €1989.53, meaning I would actually lose out by providing a service. If, on the other hand, I charged 13.5% VAT on top of the full material cost (inc vat), plus the labour, totalling €2100, then the total bill would be €2383.50. This means the statue has cost Miss Jones an extra €270 (13.5% VAT on top of the already taxed price @21%) before I put it into her garden. The same applies for any material, be it paint, wood, or felt. Can someone shed a little light on this please? I am going mad here trying to work this out.

The only way a blanket 13.5% would work, is if it is charged on the ex vat cost of everything. This would mean that Miss Jones would then only be paying €1876.03 for the staue and €113.50 for labour, bringing the total cost to €1989.53, saving Miss Jones €123.97 and costing her less than the price of the statue alone in this case. Meanwhile, the revenue receive vat cost of €236.64, but I claim back €347.11, meaning revenue lose €110.47 in this example. This leads me to believe that my original thoughts of splitting vat rates and charges for materials and labour would be the most logical in any case. The client is charged the correct amount for materials and the service provider can claim back the VAT on those materials, helping to go toward some additional costs most clients would laugh at if you included on an invoice (fuel, insurance etc). The service is then charged at 13.5%. Client is happy, service provider is happy and revenue gets paid, keeping them happy too. Am I correct?

Gambler

This is the bit of info you want:

http://www.revenue.ie/en/tax/vat/leaflets/mixed-supplies-goods-services.html

18. "Two-thirds" rule: The new legislation has been drafted in terms of its provisions being subject to the two-thirds rule. Accordingly the two-thirds rule continues to operate, as heretofore, where supplies of services also involve supplies of goods. In practical terms, in accordance with section 10(8) of the Act, where a contract for the supply of services also involves the supply of goods (apart from food), the total consideration is deemed to be referable to the goods, where the VAT-exclusive cost of the goods exceeds two-thirds of the total contract price (excluding transport costs). In these circumstances the taxable person is liable to account for VAT on the total consideration at the rate applying to the goods.

By my understanding (and someone else here will point it out if I am wrong) then if the goods accounts for less than 2/3 of the total ex Vat amount then everything gets charged to the customer at 13.5% - if the goods (i.e. the statue) amounts to more then 2/3 of the total ex vat amount then the whole lot gets charged at 21%.

goz83

Gambler wrote: »

This is the bit of info you want:

http://www.revenue.ie/en/tax/vat/leaflets/mixed-supplies-goods-services.html



By my understanding (and someone else here will point it out if I am wrong) then if the goods accounts for less than 2/3 of the total ex Vat amount then everything gets charged to the customer at 13.5% - if the goods (i.e. the statue) amounts to more then 2/3 of the total ex vat amount then the whole lot gets charged at 21%.

OK. So that makes a bit more sense. I charge 13.5% on the ex vat price of both materials and labour in most cases. 21% rate will only apply if materials cost 2/3 of total ex vat price. If it turns out to be different and someone knows the right answer, can that person PM me. Thanks.

DubTony

OP, as a VAT registered business, you claim back any VAT paid out to suppliers.
So if you paid €100 + VAT for products ... €121, you'd claim back the €21.

The 2/3 rule applies. If the labour portion of the bill (before VAT) exceeds 2/3 of the whole bill (before VAT) you charge VAT at the service rate.

I assume the guy in Revenue was informed by you how much the work and products were valued at and so gave you the info as you should charge it. He was right I'm sure.

So here it is. When the 2/3 rule applies, buy goods at €100 +VAT (@21%) and sell those goods at whatever price you like + VAT at 13.5%. So let's say you don't want a profit on the goods, sell them at €100 +13.5% VAT and give the customer a good deal. You're NOT charging the customer VAT on top of the full vat inclusive price you paid, you're charging VAT on the price you sell it at. Remember, as a VAT registered bsiness the price you actually pay is the VAT exclusive price, irrespective of how much you actually handed over. (You have to claim back the VAT).

In a case where the 2/3 rule doesn't apply (like your statue example above), you charge 21% on the product and 13.5% on the labour. In that scenario if you charged her 13.5% on the statue you'd be breaking the law.

edit: The above information may be wrong.

DubTony

goz83 wrote: »

OK. So that makes a bit more sense. I charge 13.5% on the ex vat price of both materials and labour in most cases. 21% rate will only apply if materials cost 2/3 of total ex vat price. If it turns out to be different and someone knows the right answer, can that person PM me. Thanks.

Actually I think the 2/3 rule applies when labour is 2/3 or more. It's the labour portion of the transaction that defines whether or not the 13.5% applies to the goods as well. So a 50/50 split would see VAT charged at both rates.
edit: OK, just read the Revenue Bit above, and it's as clear as mud.

theg81der

The point in the thread I posted was that you pay 21% on materials and then claim the 7.5% back yourself after charging the job at 13.5%. That was pretty clear in that thread - do you just want a different answer you like better? A lot of people don`t want the hassle of waiting and filing to get the 7.5% back but that is what your suppose to do.

goz83

Thanks. It all makes sense now. But the revenue guy did actually say I charge 13.5% on top of the full material cost, which already included 21% VAT. That's what threw me. Maybe he didn't have his weetabix that morning

I don't mind waiting for VAT to be returned and being able to claim back VAT on new tools is very handy too. Just a shame I can't claim it back on materials I use on my own home for repairs and improvements (unless it's for show purposes

amen

A lot of people don`t want the hassle of waiting and filing to get the 7.5% back but that is what your suppose to do

but that is a lot of money for any business.