Would someone mind giving me some advice?
I know that if a VAT registered business makes purchases on behalf of customers and passes on these costs when invoicing, these can be treated as disbursements for VAT purposes and they don't have to charge VAT on them. http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm1
I have a business that is not VAT registered (below threshold) and purchases materials for clients then invoices for them at cost. If the cost of materials ever takes us over the VAT threshold, can we treat these as disbursements and thus remain under the VAT threshold? or is that not how it works?
For example (where the VAT threshold is £81,000), if we invoice £70,000 in labour and £50,000 in materials (invoiced to clients at cost) can we claim our turnover for VAT purposes is £70,000 (so we could remain unregistered) or would it be £120,000 (so we would have to register)?
Thanks
James
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Replies (3)
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Who is the supply to?
To be a disbursement, the materials MUST be supplied to the customer. This seems to be pretty much standard practice for some trades, allowing them to keep below the threshold. Ideally, the customer would just buy what they want and you come along and do the labour, so no need to disburse. If the materials are supplied to the contractor, they count towards the threshold, even if charged on at cost.
Any involvement of the contractor in the decision making process, or in paying for the materials runs the risk of HMRC problems, ie them asserting the contractor is supplying one service - supply and fit.
What I have seen before, is the customer deciding what they want and then paying the precise amount to the contractor, who goes to the suppliers, buys and then hands over the invoice.
Hope this helps.
Wayne
Disbursements
If you look at https://www.gov.uk/vat-costs-or-disbursements-passed-to-customers it clearly sets out what can and cannot be treated as a disbursement.
Hi
Hello Wayne
Thanks for your answer. What you are saying is disbursements still count towards our VAT threshold, but we could get round this by passing the invoices to the customer and not putting the transaction through our accounts?
Regards
James