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Charging VAT on a service

  • 27-01-2012 9:33am
    #1
    hiDEhi
    Registered Users, Registered Users 2 Posts: 71 ✭✭


    Hi,

    I'm a contractor, when I charge a customer for services and materials do I charge for the full amount of the materials cost or do I leave out the vat paid for the materials?

    Example,
    I buy materials for a job at €100 + VAT @21% = €121.00
    My labour cost is €200. Do I charge €321+ VAT @ 13.5%, or should it be €300+ VAT @ 13.5%?


Comments

  • #2
    Leogirl
    Registered Users, Registered Users 2 Posts: 455 ✭✭Leogirl


    For subcontracts the 2/3 rule applies.

    If labour charge is 2/3 or more of total cost - the 13.5% rate applies. So if the total cost is 300 & VAT & materials are only 100, you'd charge VAT at 13.5%.

    However - if you are a subcontractor engaged by a registered principal contractor - they are supposed to pay the VAT. So you'd invoice them 300.00 in total & they would cover the VAT due on top of this. You're supposed to write "VAT paid by Principal Contractor" on the invoice.


  • #3
    Mongarra
    Registered Users, Registered Users 2 Posts: 1,119 ✭✭✭Mongarra


    Because you are entitled to reclaim the VAT paid on your purchase of the materials you do not charge the VAT to your customer, so your invoice should be labour plus VAT-exclusive cost of materials.

    An important point to remember is what is called "the two-thirds rule". Where the (VAT exclusive) cost of materials exceeds two-thirds of the total cost (again excluding VAT) of the contract, the rate of VAT to be charged on your invoice is the standard rate (now 23%) and not the usual 13.5%. In the example you give the cost of the materials is one-third of the total so the rule would not apply but if the materials were over two-thirds of the total then you would have to charge 23% on the full price.


  • #4
    hiDEhi
    Registered Users, Registered Users 2 Posts: 71 ✭✭hiDEhi


    I understand the 2/3 rule , I just had example figures in. So then I should be only charging the €100 material + €200 labour = €300 + Vat @ 21%? Is this correct?


  • #5
    dbran
    Registered Users, Registered Users 2 Posts: 2,094 ✭✭✭dbran


    No.

    As mentioned above, on the figures you have given the cost of the materials is less then 2/3 of the total cost. You charge 13.5% on the whole lot.

    If the materials is more then 2/3rd you charge 23%.

    See here...

    http://www.revenue.ie/en/tax/vat/supplies/index.html#_Two_Thirds

    Kind Regards

    dbran


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