Income tax and vat. Newly sole trader

kingbhome

Im sorry if this sounds like a ridiculous question but one i need to ask. Ive been on the dole long term, set up now as a painter decorator and also do landscaping, garden work.

This is a hypothetical question but say i earn 32k income or my labor, spend 5k on tools,diesel,advertising,website and if i set up an account in the painting store, builders merchant and get my clients to pay for 12k materials on my account paying the vat. Will i have to charge vat on my income because all my turnover is 44k euros.

Or is it i just pay income tax on the 32k that is my income, or even pay income tax on 27k earnings because ive spent 5k expenditure.

I will be getting an accountant in my second year however this is a few things that have been playing on my mind.

howardmarks

Having an accountant from the beginning could end up saving you money in the long term. Plus it's a cost of business so will reduce what you ultimately pay In tax.

To your question.
€37, 500 is the threshold with which you must register and pay Vat for providing a service. (Painting etc.).
Forgetting how you account for things or buy stock for customers, Will you invoice your customers for more than 37,500 in a 12 months period? If so you're obliged to register.

kingbhome

howardmarks wrote: »

Having an accountant from the beginning could end up saving you money in the long term. Plus it's a cost of business so will reduce what you ultimately pay In tax.

To your question.
€37, 500 is the threshold with which you must register and pay Vat for providing a service. (Painting etc.).
Forgetting how you account for things or buy stock for customers, Will you invoice your customers for more than 37,500 in a 12 months period? If so you're obliged to register.

YEs i understand about the accountant . I will be strongly considering it.

When you say will i be invoicing my customers, do you mean just for my labor cost or is it a case of if i invoice my clients for materials and labor for over 37.5k, then this is when i have to start charging vat. If so, wouldnt it be best if i just keep the materials of my books so i dont have to charge vat.

howardmarks

Yeah. If you invoice your clients for 37.5k or above your turnover becomes chargeable to vat which you charge your clients and in turn can claim vat you pay in the running of your business.
Your question regarding keeping things off the books is one I wouldn't/couldn't answer.
A GOOD accountant could talk you through effective tax planning.
I'll say one thing tho if you're clients purchase all materials and you just turn up and provide labour which causes your income to remain below the threshold then this would leave no requirement to register for Vat.

kingbhome

howardmarks wrote: »

Yeah. If you invoice your clients for 37.5k or above your turnover becomes chargeable to vat which you charge your clients and in turn can claim vat you pay in the running of your business.
Your question regarding keeping things off the books is one I wouldn't/couldn't answer.
A GOOD accountant could talk you through effective tax planning.
I'll say one thing tho if you're clients purchase all materials and you just turn up and provide labour which causes your income to remain below the threshold then this would leave no requirement to register for Vat.

If i get the materials on my account, they go in and pay, would this be classed as me invoicing them? Or can i just charge for my labor in this scenario.

If i charge my clients vat on my labor, i will price myself out of work.

tanit

kingbhome wrote: »

If i get the materials on my account, they go in and pay, would this be classed as me invoicing them? Or can i just charge for my labor in this scenario.

If i charge my clients vat on my labor, i will price myself out of work.

From Revenue point of view you are the one buying the materials as it's your account and considering that they are the ones paying that's part of the revenue you are receiving. If you are not declaring that income and only invoicing them for labour and not those materials, it becomes fraud (you are not declaring that turnover).

If the purchase invoice of materials is under your client's name it stops being linked to you, being part of your turnover and relevant for Vat issues.

As far as I know so long as your name appears in the invoice you can use it for deduction on your Vat on Purchases and that's where Revenue will become touchy: if someone else is paying for those materials you need to prove where that money come from and if it comes from clients is part of your turnover figure that you should declare to Revenue

You need to be careful about that because it can become a money laundering issue (more than likely not, but there is a chance that it can). There needs to be a traceability of the money. You are buying something (the account at Heiton or McMahons is under your name) but someone else is paying for it; why are they paying for it?. If they pay on cash Revenue will have difficulties chasing anything, but if they pay using a cheque or a card it's not you paying is some else and you have not provide any records for the reasons for those payments

Either they directly pay and get invoiced by Heiton or McMahon or you include that transaction on your sales invoice, they get invoiced for the labour and materials and they pay for the materials to Heiton or McMahon and directly to you for the labour. In the last case you would be entitled to a credit on your Vat3 for those purchases.

Talk with your accountant and be careful because it can be very easily become a big problem when you are doing nothing wrong

Edit: Also I forgot to say this before if your name is in the invoice and the customer does not pay that invoice you are the one liable for that invoice, Heiton/McMahon will chase you not the client because that's the person they have the contract/invoice with. So it's better that either the name there is your customer's name or you invoice your customers for those materials. Don't get into troubles if you don't have to.

kingbhome

tanit wrote: »

From Revenue point of view you are the one buying the materials as it's your account and considering that they are the ones paying that's part of the revenue you are receiving. If you are not declaring that income and only invoicing them for labour and not those materials, it becomes fraud (you are not declaring that turnover).

If the purchase invoice of materials is under your client's name it stops being linked to you, being part of your turnover and relevant for Vat issues.

As far as I know so long as your name appears in the invoice you can use it for deduction on your Vat on Purchases and that's where Revenue will become touchy: if someone else is paying for those materials you need to prove where that money come from and if it comes from clients is part of your turnover figure that you should declare to Revenue

You need to be careful about that because it can become a money laundering issue (more than likely not, but there is a chance that it can). There needs to be a traceability of the money. You are buying something (the account at Heiton or McMahons is under your name) but someone else is paying for it; why are they paying for it?. If they pay on cash Revenue will have difficulties chasing anything, but if they pay using a cheque or a card it's not you paying is some else and you have not provide any records for the reasons for those payments

Either they directly pay and get invoiced by Heiton or McMahon or you include that transaction on your sales invoice, they get invoiced for the labour and materials and they pay for the materials to Heiton or McMahon and directly to you for the labour. In the last case you would be entitled to a credit on your Vat3 for those purchases.

Talk with your accountant and be careful because it can be very easily become a big problem when you are doing nothing wrong

Edit: Also I forgot to say this before if your name is in the invoice and the customer does not pay that invoice you are the one liable for that invoice, Heiton/McMahon will chase you not the client because that's the person they have the contract/invoice with. So it's better that either the name there is your customer's name or you invoice your customers for those materials. Don't get into troubles if you don't have to.

A little mistake could potentially cost me money. I was off the understanding that one only charged vat once their earnings went over 37.5k and not the actual turnover.

When you say revenue becoming touchy about using it for deducting vat, hows that possible if one isnt registered for vat. All vat will be paid on materials and nothing claimed back.

What happens in the scenario where one doesnt register for vat because they have no intention of going over the threshold, but circumstances changed say in November which brought them over it by about 5-10k, are they liable for vat for everything all year even though one didnt charge it before November, or do they just start paying vat on the 5-10k over the threshold.

tanit

kingbhome wrote: »

A little mistake could potentially cost me money. I was off the understanding that one only charged vat once their earnings went over 37.5k and not the actual turnover.

When you say revenue becoming touchy about using it for deducting vat, hows that possible if one isnt registered for vat. All vat will be paid on materials and nothing claimed back.

What happens in the scenario where one doesnt register for vat because they have no intention of going over the threshold, but circumstances changed say in November which brought them over it by about 5-10k, are they liable for vat for everything all year even though one didnt charge it before November, or do they just start paying vat on the 5-10k over the threshold.

It's sales turnover not earnings and you are obliged to register when you expect you will be going over the threshold. If your circumstances have changed you need to register for Vat purposes the sooner the better not to get into trouble with Revenue.

If you are in business you more or less know if in the last 12 you have been over the threshold and that's the moment you register and become liable to charge vat and collect it on behalf of Revenue. Revenue might want to check that out and that's when there is a chance for an audit and a Revenue auditor might raise a Vat estimate of what they believe is the Vat liability owed to Revenue if they do not agree with the registration and the figures sent to them.

They can become touchy with the traceability of the money not the vat that can be deducted because you are paying for things and you can't explain the source of those payments and you are not declaring those payments on your income in a clear way (part of the invoice is directly paid by the customer for the materials, something like that included on your invoice, that income declared on your F11 for example)

They are hiring more people to go looking for that kind of stuff in people's income tax returns, they linked them to Vat returns and they have a whole country providing them with statics year after year to know what they expect people to be earning and the figures that should appear in the returns.

Talk with an accountant and be careful with the income issue. And in the worst case scenario an unprompted disclosure will be the best option but I don't think you are yet in that place but you definitely need to clarify the issue of who is paying what and how that is declared to Revenue. If your name is on those invoices and you can't clarify how they were paid you can get into trouble as I told you before