New Business.....VAT Queries

firemansam1

Hi,

I realise that there are numerous previous posts about VAT etc but none seem to answer all my exact queries.so here goes.

I'm setting up as a sole trader as an electrician.

I will be working for private individuals and also for other electrical contractors.

1. Do I need to register for VAT, by not registering for VAT am I putting myself or the electrical contractors I intend to work for in an unadvantageous position.

2. If I do register for VAT, what are the different scenarios that I will encounter ie. when charging a private individual and then when charging another business.

For instance 1:

If i do a job for a private individual and lets say the materials cost €100 incl. VAT and my labour costs €100(5 hours X €20)...what would my invoice to that private individual make up, and am i entitled to the VAt on my materials back?

For instance 2:

I do a job for another contractor, lets say he supplies the materials or there are none required and I supply 5hours labour again at €20/hour= €100. Again how would my invoice be made up and what are the VAT implications.

Thanks

dbran

Hi

This can be a complex area and a lot will depend on the individuals circumstances.

The decision to register for VAT is a difficult one.

If you do not register for VAT then you will not be able to claim back the VAT incurred by you on your materials ie it will be a cost for you.

If you do register, you will have to charge VAT on all of your sales including the sales to private unregistered persons. This will mean you will need to charge them more for your services which will make you seem less competitive.

In your first situation because it is to an unregistered individual you will be required to charge VAT and the 2/3rds rule will apply. If the value of the goods, that is their cost excluding VAT, to the service contractor used in carrying out the work exceeds two-thirds of the total charge, exclusive of VAT then the VAT rate chargable is the VAt charged on the goods. If the value of the goods is less then 2/3 of the total charge then the vat rate is deemed to be a supply of services and the 13.5% rate applies on the entire transaction. So in your example the total cost of the goods is only 50% of the total cost of the work so the VAT on the entire amount is at 13.5% You are entitled to claim back the VAT incurred on the materials.

If the work is for another contractor then it is the principle contractor who must account for the VAT on the reverse charge basis. You invoice the contractor with nil VAT and you mark on the invoice that this is to be accounted for on the reverse charge basis.

The contractor must calculate the VAT that is chargeable on your invoice and account for this VAT to revenue on his own VAT return. He also takes an identical credit for this VAT that he has suffered.

I know it sounds complicated but it is basically to ensure that all of the VAT is collected by revenue. Before the subcontractor was disappearing and not paying over the VAT on the sale that he was charging to the principle contractor who was then taking a vat credit for the same VAT. You are entitled to claim back the VAT incurred on the materials as above.

Hope this helps

dbran

firemansam1

Thanks dbran,

So, in my example in the previous post, with the €100 incl.VAT for materials and the €100 for labour, is the 13.5% VAT charged on the materials excl. VAT and the labour added together ie. €81.30(materials excl. VAT) + €100(labour cost) = €181.30 +13.5%

Secondly, so it would seem that if I were doing jobs for private individuals where the material costs weren't that big, and then doing work for other contractors where no materials were supplied by me....i'd be better not registering for VAT.

I was reading a bit about RCT etc.....where does all that come in to play.

Thanks again, think I'm getting the idea now

dbran

Hi

Yes you are correct re the calculation.

Broadly speaking RCT comes in when you are working for another principle contractor. In that case he needs to register himself with the revenue as a principle contractor and yourself as his subcontractor and deduct RCT on the amount he pays over to you. This RCT can be offset against other taxes that you owe.

Dbran