Vat charges in construction?

Megatron!!

Trying to get my vat sorted. Im registering for it so I need clarification on a few points.

Doing a job for another business who claim vat back from me, 23% on materials and 13.5 on service. That part is straight forward but
doing a job for domestic persons who cant reclaim the vat is a little trickier. Do I charge them vat on materials but hold off on the service charge as they cant claim it back? Also the vat that was charged on materials will become profit so do most people take that from the labour charge and drop there quote?

I know these are basic questions but im trying to be as competitive as possible at startup so need to learn the norms. Its a carpentry business staring off so Im new to all this.

cheers

Alan Shore

If you have registered for VAT and don't understand it a meeting with an accountant would be time well spent.

Not sure why you would not charge a private individual VAT, have a look through http://www.revenue.ie/en/tax/vat/leaflets/mixed-supplies-goods-services.html

The two thirds rule would be of use to you.

Victor

It's more complicated than that.

Let us say that you buy €100 of materials, you will pay the supplier €123 (€100+23%), €100 goes to the supplier and the supplier collects €23 that he passes on to revenue.

You then do work that you value the labour element at €700 (including employers PRSI, insurance, overheads, etc.).

So that you can make a profit / make up for the times you make a loss, you want to get €1,000 from the client (for you, not including the VAT). So you have to add 13.5% to the €1,000, so €1,135 (€1,000+13.5%).

So, the client pays €1,135. You get €1,000 and you have to set aside €135 for the Revenue. However, as you have already paid the €23 to the supplier as VAT, that gets deducted from the €135, so you write a cheque to Revenue for €135-23=€112.

Every example will be different, but they all follow the above format. Everyone pays VAT (unless they belong to certain exempt classes, but check those with Revenue). If you don't collect the VAT element, you have to pay the VAT. If you don't have a VAT invoice from a supplier, you have to pay the VAT.

One special case you have to be careful of is where you are supplying fittings. Let us say you build a kitchen extension and fit it out. While you would charge 13.5% on the building works, you would have to charge 23% on the fittings, i.e. anything that can be removed for the kitchen and still be itself, e.g. fridge, cooker, microwave, etc. The fitted kitchen is normally charged at 13.5%, because, well, if you take that apart, it can't be used in and of itself.

The extreme of this case would be where you only fit out the kitchen and charge the cost of the goods + plus a fitting cost, you might find yourself spending €10,000 on the goods and €1000 for yourself. In such case the 'two-thirds' rule may kick in and you will have to charge 23% on everything. this can be avoided somewhat by charging separate invoices, but in such situations, get advice.

Megatron!!

Alan Shore wrote: »

If you have registered for VAT and don't understand it a meeting with an accountant would be time well spent.

Not sure why you would not charge a private individual VAT, have a look through http://www.revenue.ie/en/tax/vat/leaflets/mixed-supplies-goods-services.html

The two thirds rule would be of use to you.

Had a meeting with accountant today acctualy and she cleared it up a bit. Im still going to have to look into it more but totally different to what I was thinking. Cheers I will look at that link for more information

Megatron!!

Victor wrote: »

It's more complicated than that.

Let us say that you buy €100 of materials, you will pay the supplier €123 (€100+23%), €100 goes to the supplier and the supplier collects €23 that he passes on to revenue.

You then do work that you value the labour element at €700 (including employers PRSI, insurance, overheads, etc.).

So that you can make a profit / make up for the times you make a loss, you want to get €1,000 from the client (for you, not including the VAT). So you have to add 13.5% to the €1,000, so €1,135 (€1,000+13.5%).

So, the client pays €1,135. You get €1,000 and you have to set aside €135 for the Revenue. However, as you have already paid the €23 to the supplier as VAT, that gets deducted from the €135, so you write a cheque to Revenue for €135-23=€112.

Every example will be different, but they all follow the above format. Everyone pays VAT (unless they belong to certain exempt classes, but check those with Revenue). If you don't collect the VAT element, you have to pay the VAT. If you don't have a VAT invoice from a supplier, you have to pay the VAT.

One special case you have to be careful of is where you are supplying fittings. Let us say you build a kitchen extension and fit it out. While you would charge 13.5% on the building works, you would have to charge 23% on the fittings, i.e. anything that can be removed for the kitchen and still be itself, e.g. fridge, cooker, microwave, etc. The fitted kitchen is normally charged at 13.5%, because, well, if you take that apart, it can't be used in and of itself.

The extreme of this case would be where you only fit out the kitchen and charge the cost of the goods + plus a fitting cost, you might find yourself spending €10,000 on the goods and €1000 for yourself. In such case the 'two-thirds' rule may kick in and you will have to charge 23% on everything. this can be avoided somewhat by charging separate invoices, but in such situations, get advice.

This sounds a lot like what the accountant said, she doesnt deal with trademen so wasnt able to go into great depth about it.

Does this mean if I do a job and say €500 is paid on materials plus Vat that the supplier automatically charges at 23%. Of these materials mostly wood and fittings nothing is a usable individual item.

Then I charge €500 on labor and add 13.5% Vat.

Does this mean materials cost is €615 and labor is €567.5.

Or does it mean because of the above stated the materials are actually put through at 13.5% and then balanced resulting in

materials are now €567.5
and labor is €567.5

therefore to balance I take 567.5 from 615= 47.50


So Im owed 47.50. Therefore Because I owe €67.50- €47.50= €20

So do I now owe 20 the Ross or am I totally clueless.

This is soo confusing. I will be doing a light vat course by the looks of it.

Megatron!!

Just read and contacted accountant on the 2 3rds rule and its clicked. Very confusing stuff ive been told off some people(friends and family) that really did sent me in the wrong direction but I think I have it now cheers

Legend100

just to make things more confusing for you......

are you a subbie working for a principal contractor on any job?

As you don't charge the principal VAT in this situation under the reverse charge VAT principals in the construction industry

Victor

Megatron!! wrote: »

Does this mean if I do a job and say €500 is paid on materials plus Vat that the supplier automatically charges at 23%.

The supplier will know what rate to charge. A small number of (typically bulky) products are charged at 13.5%.

Megatron!! wrote: »

Of these materials mostly wood and fittings nothing is a usable individual item.

To a degree that is me ad-libbing the rules.

For simplicity, let us take electrical work, the electrician will pay 23% on just about everything he buys. When billing the client, he charges 13.5% on most things, but not light bulbs, appliances or the likes of a table light (simply plug out and take away) - those get charged as 23%. Otherwise, a contractor would be able to out-compete with a supplier solely by charging lower VAT, which would be an unfair advantage.

To qualify for the 13.5% rate, one need to at a minimum nail, screw or glue the item to the structure, but Revenue won't allow you to cheat by you claiming you bolted the 54 inch TV to the wall.

Then I charge €500 on labor and add 13.5% Vat.

Does this mean materials cost is €615 and labor is €567.5.

You add 13.5% to everything together - the whole price - you don't supply the client with two separate invoices.

Or does it mean because of the above stated the materials are actually put through at 13.5% and then balanced resulting in

materials are now €567.5
and labor is €567.5

therefore to balance I take 567.5 from 615= 47.50

Materials €500 (you paid supplier €615 of which €115 is VAT)
Labour €500
Sut-total €1,000
VAT €135
Total €1,135

So Im owed 47.50. Therefore Because I owe €67.50- €47.50= €20

So, you collect €135 from the client on behalf of Revenue, but you had paid €115 to the supplier, so you pay revenue €20. The number is the same in this case, but you've over-calculated it.

Megatron!!

Legend100 wrote: »

just to make things more confusing for you......

are you a subbie working for a principal contractor on any job?

As you don't charge the principal VAT in this situation under the reverse charge VAT principals in the construction industry

OMG, Im not going to be able to sleep after reading all that.

I think this is where i have been getting mixed up with the rct that I have heard so much about. Im going to spend a while going through the lot and bring questions with me to accountant. Cheers for the panic attack:D

Dtp1979

Victor wrote: »

It's more complicated than that.

Let us say that you buy €100 of materials, you will pay the supplier €123 (€100+23%), €100 goes to the supplier and the supplier collects €23 that he passes on to revenue.

You then do work that you value the labour element at €700 (including employers PRSI, insurance, overheads, etc.).

So that you can make a profit / make up for the times you make a loss, you want to get €1,000 from the client (for you, not including the VAT). So you have to add 13.5% to the €1,000, so €1,135 (€1,000+13.5%).

So, the client pays €1,135. You get €1,000 and you have to set aside €135 for the Revenue. However, as you have already paid the €23 to the supplier as VAT, that gets deducted from the €135, so you write a cheque to Revenue for €135-23=€112.
.

Sorry for jumping onto an oldish thread, I just came across this and was reading with interest. Just in relation to the above quote should it not be:
100 materials..... 23 on vat
Labour 1,000
So
1000 + 100=1100
1100 @ 13.5% vat = 148.50
Invoice total €1248.50

148.50 to charge customer - 23 already paid on materials = 125.50 to revenue??
I'm a novice on this myself soid like your input
Thanks

Victor

Dtp1979 wrote: »

Sorry for jumping onto an oldish thread, I just came across this and was reading with interest. Just in relation to the above quote should it not be:
100 materials..... 23 on vat
Labour 1,000
So
1000 + 100=1100
1100 @ 13.5% vat = 148.50
Invoice total €1248.50

148.50 to charge customer - 23 already paid on materials = 125.50 to revenue??
I'm a novice on this myself soid like your input
Thanks

No. Its 100+700+profit = 1,000

1000=1000
1000 @ 13.5% vat = 135
Invoice total €1135

Dtp1979

Victor wrote: »

No. Its 100+700+profit = 1,000

1000=1000
1000 @ 13.5% vat = 135
Invoice total €1135

Does that not contradict what you said at the end of that original message about 500 labour 500 materials ?
Edit!
I think I misunderstood your original post. Basically you were saying that the 100 materials were included in the 1k

Victor

Dtp1979 wrote: »

I think I misunderstood your original post. Basically you were saying that the 100 materials were included in the 1k

Yes.

Dtp1979

Victor wrote: »

Yes.

Thank you. Hope it didn't come across that I was undermining you

esox28

The extreme of this case would be where you only fit out the kitchen and charge the cost of the goods + plus a fitting cost, you might find yourself spending €10,000 on the goods and €1000 for yourself. In such case the 'two-thirds' rule may kick in and you will have to charge 23% on everything. this can be avoided somewhat by charging separate invoices, but in such situations, get advice.

Can this rule apply to all sectors of construction i.e. plumbers, for example if I supply a boiler and fittings at a cost of €1500 + vat and my labour cost is €300 + vat, given that two thirds of the labour is €225 is my only option to increase the labour vat rate from 13.5% to 23%?

barneystinson

esox28 wrote: »

Can this rule apply to all sectors of construction i.e. plumbers, for example if I supply a boiler and fittings at a cost of €1500 + vat and my labour cost is €300 + vat, given that two thirds of the labour is €225 is my only option to increase the labour vat rate from 13.5% to 23%?

I don't know why you are taking 2/3 of the €300?!

The rule is quite simple and makes sense when you think about it. If more than 2/3 of the total net cost being invoiced by you (in your example that's 1,800 - the boiler cost you 1,500 (assuming you aren't taking any margin on it!) and the cost of labour is what you are charging for it so that's 300), is made up of goods/materials, then the entire supply is treated as if it was a supply of the goods/materials.

Otherwise, as a previous poster pointed out, you could walk into your suppliers and buy a boiler from them (or a TV, or whatever type of good you like) for 1,500 + 23% VAT, then go down the road and basically sell it on for say 1,560 + 13.5% VAT, by screwing or bolting it in...

The customer is delighted because it would have cost them 1,845 (1,550 +23%), whereas you've charged them 1,771 (1,560 +13.5%). Meanwhile the legitimate retailer of the good is disadvantaged because someone who provides even a token service can get away with charging a different rate of VAT on the same good...

esox28

So its two thirds of the total cost less vat?

Total cost €1800
2/3 €1350

so giving my labour cost at 300 im not within the two thirds so therefore should be charging labour at 23%?

Victor

esox28 wrote: »

So its two thirds of the total cost less vat?

Before VAT, yes.

Total cost €1800
2/3 €1350

Two thirds would be €1,200.

so giving my labour cost at 300 im not within the two thirds so therefore should be charging labour at 23%?

Labour / profit would be €600?

Potentially yes. However, Revenue may take the position that a boiler becomes part of the building. You should get advice for such situations.