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2/3rds 1/3rd rule

  • 09-03-2012 11:45pm
    #1
    JohnnieK
    Registered Users, Registered Users 2 Posts: 2,526 ✭✭✭


    Can some one please explain to me the two thirds one third rule? And does it apply to all trades.

    My taking of it is (and was explained to me by my accountant) if materials for a job where 2/3rds or more of the sub-total then VAT @ 23% is charged and if lower then 13.5% is charged. I thought i had it but this very night I have been cast back into the dark ages regarding this.


Comments

  • #2
    barneystinson
    Registered Users, Registered Users 2 Posts: 4,686 ✭✭✭barneystinson


    You've got it right there.

    Think about it like this; if the materials COST is more than 2/3 of the subtotal, then effectively all you're doing is selling on the goods / materials (at a profit). Any labour you're charging for is incidental to this supply of goods. So it's only logical that the VAT rate that would apply is the rate attaching to goods...


  • #3
    JohnnieK
    Registered Users, Registered Users 2 Posts: 2,526 ✭✭✭JohnnieK


    barneystinson wrote: »
    You've got it right there.

    Think about it like this; if the materials COST is more than 2/3 of the subtotal, then effectively all you're doing is selling on the goods / materials (at a profit). Any labour you're charging for is incidental to the supply of the goods. So it's only logical that the VAT rate that would apply is the rate attaching to goods...

    Thanks for that. Does that apply to all trades and professions?
    Another silly question. what would be an easy way to calculate it (bad maths)
    I would normally divide the sub-total by 2 and see if the labour was over that and charge the correct VAT rate accordingly.

    Am I doing it wrong?


  • #4
    barneystinson
    Registered Users, Registered Users 2 Posts: 4,686 ✭✭✭barneystinson


    JohnnieK wrote: »
    Thanks for that. Does that apply to all trades and professions?
    Another silly question. what would be an easy way to calculate it (bad maths)
    I would normally divide the sub-total by 2 and see if the labour was over that and charge the correct VAT rate accordingly.

    Am I doing it wrong?

    Yeah that's not right, sure that would be the one-half rule! :D

    1. Get the subtotal,
    2. Get two-thirds of it (divide by 3 and double that),
    3. Compare this figure with the COST of the materials / goods.
    4. If cost of the materials is more than the two thirds, you charge the rate associated with the materials (usually 23%), otherwise you charge the rate associated with labour (usually 13.5%).


  • #5
    JohnnieK
    Registered Users, Registered Users 2 Posts: 2,526 ✭✭✭JohnnieK


    Thanks for that. I'll have to go back over the invoices :o


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