When quoting a client, should I account the supplier's VAT into my prices?

alex_r

Hello,

I feel like its a bit silly question, but here it goes

Whenever I am quoting a client I take my suppliers prices with VAT., for example;
A sheet of some material from a supplier costs 50 euro. plus 23% VAT and I pay him 61.5 euro.
So for my material expenses, I use cost with VAT - €61.5. and then on top of that I add my 23% vat.
My business partner says I don't need to do that since we get this VAT back. We're registered for VAT by the way

However, I don't get such mathematics. If my supplier sends me an invoice for 61.5, I have to pay this 23% value-added tax out of my pocket.

or what?

Thanks

ACADasltiv

No you don't need to take the VAT you pay your supplier into account as it's not an expense. You claim the money back, so the supplies are only costing you €50.

alex_r

ACADasltiv wrote: »

No you don't need to take the VAT you pay your supplier into account as it's not an expense. You claim the money back, so the supplies are only costing you €50.

Thanks ACADastiv. I appreciate your response.

So when I have to pay my supplier upfront for 100 sheets of material I have to pay 6150, which is 1150 out of my pocket, before I even get paid for the work?

Thatnastyboy

Yes, that is correct,

By adding the 23% on top of the vat inclusive rate, you are effectively adding a 23% profit margin on top of it all - and quite likely pricing yourself out of competition..

ChippingSodbury

alex_r wrote: »

Thanks ACADastiv. I appreciate your response.

So when I have to pay my supplier upfront for 100 sheets of material I have to pay 6150, which is 1150 out of my pocket, before I even get paid for the work?

Yes, a standard set-up wold be that you pay your supplier after 30 days credit.
You bill your client and get paid after 30 days credit (or whatever credit terms you've agreed to)

You buy 1 sheet @ €50 + 23% VAT on 01-Jan
You use the sheet on a job in January and on 31-Jan, you bill your Client:
1 sheet @ €55 (10% mark-up) + vat @ 23%
100 hours @ €10 per hour + vat @ 13.5% (or might be 23% depending on type of work)

Your bill to Client:
Materials: €55 (assume 10% mark-up or whatever)
Labour: €1000
Vat @ 23%: €12.65 (23% of €55)
VAT @ 13.5%: €135 (13.5% of €1000)
Total: €1,202.65

You pay your supplier on 01-Feb: €61.50
At the end of Feb (if you are on a receipts basis), your VAT return is the VAT you paid on the sheet: €-11.50 (you would get this back)
01-Mar, your Client pays you €1,202.65
At the end of April, your VAT return is the VAT you collected: €147.65

alex_r

Thank you very much, lads! That helped to clear things up a lot!

the_pen_turner

ChippingSodbury wrote: »

Yes, a standard set-up wold be that you pay your supplier after 30 days credit.
You bill your client and get paid after 30 days credit (or whatever credit terms you've agreed to)

You buy 1 sheet @ €50 + 23% VAT on 01-Jan
You use the sheet on a job in January and on 31-Jan, you bill your Client:
1 sheet @ €55 (10% mark-up) + vat @ 23%
100 hours @ €10 per hour + vat @ 13.5% (or might be 23% depending on type of work)

Your bill to Client:
Materials: €55 (assume 10% mark-up or whatever)
Labour: €1000
Vat @ 23%: €12.65 (23% of €55)
VAT @ 13.5%: €135 (13.5% of €1000)
Total: €1,202.65

You pay your supplier on 01-Feb: €61.50
At the end of Feb (if you are on a receipts basis), your VAT return is the VAT you paid on the sheet: €-11.50 (you would get this back)
01-Mar, your Client pays you €1,202.65
At the end of April, your VAT return is the VAT you collected: €147.65

Why are you using 23% on materials. That should be 13.5 until you get to the 2 thirds rule

ACADasltiv

alex_r wrote: »

Thanks ACADastiv. I appreciate your response.

So when I have to pay my supplier upfront for 100 sheets of material I have to pay 6150, which is 1150 out of my pocket, before I even get paid for the work?

Yeah I know you’re going to pay your supplier upfront for the supplies, but the flip side is that you’ll be collecting VAT on sales from customers and not handing that over to Revenue until you do your VAT return. So chances are you’ll actually have more VAT coming in from sales than you’ll actually be paying out on purchases.

GG66

ChippingSodbury wrote: »

Yes, a standard set-up wold be that you pay your supplier after 30 days credit.
You bill your client and get paid after 30 days credit (or whatever credit terms you've agreed to)

You buy 1 sheet @ €50 + 23% VAT on 01-Jan
You use the sheet on a job in January and on 31-Jan, you bill your Client:
1 sheet @ €55 (10% mark-up) + vat @ 23%
100 hours @ €10 per hour + vat @ 13.5% (or might be 23% depending on type of work)

Your bill to Client:
Materials: €55 (assume 10% mark-up or whatever)
Labour: €1000
Vat @ 23%: €12.65 (23% of €55)
VAT @ 13.5%: €135 (13.5% of €1000)
Total: €1,202.65

You pay your supplier on 01-Feb: €61.50
At the end of Feb (if you are on a receipts basis), your VAT return is the VAT you paid on the sheet: €-11.50 (you would get this back)
01-Mar, your Client pays you €1,202.65
At the end of April, your VAT return is the VAT you collected: €147.65

Are these replies from accountants or trades people?

As thepenturner says I recommend you check this as I don't think it's correct. I'm not an accountant but I have hired a lot of trades..

Here it is from revenue.
https://www.revenue.ie/en/vat/vat-on-services/services-taxable-at-the-rate-of-the-goods-the-two/index.aspx

frankythefish

Op, you could always bill materials and labour on a job on separate invoices to client to avoid two thirds rule. Just pointing out

Who is your client?
Practically if it is a consumer rather than another business they might reasonably expect that any quote includes VAT.

Avatar MIA

Most businesses (or they'd not be in business long) are in a VAT owing situation at any given time - and not out of pocket. For a VAT registered business VAT is not an expense (cars over 25k, petrol and some travel exps etc.) Excepted.

ACADasltiv

Deleted User wrote: »

Who is your client?
Practically if it is a consumer rather than another business they might reasonably expect that any quote includes VAT.

He is including VAT in his quotes. The problem is he's including it twice - once on the cost of his materials and again on the total.

ACADasltiv

ACADasltiv wrote: »

He is including VAT in his quotes. The problem is he's including it twice - once on the cost of his materials and again on the total.

Re reading the OP I see this now