Input and output VAT on home improvement materials

Didn't find your answer?

I have a client who is newly VAT registered and carries out home improvments for their customers, such as new kitchens and bathrooms, boiler repairs, fixing leaks etc, amongst other small odd jobs.

They purchase all of the materials needed for each job and then re-charge them back to their customers through their invoices... their invoices separate the charges for labour and materials.

Since they buy materials for several customers at once, they do not itemise each thing on their sales invoices and just describe them as 'materials'

They also claim all the VAT back on these material purchases.

As it would be very time-consuming for me to go through every single receipt and ask them what they bought for who, in order to treat the materials as disbursements, I suggested they charge the NET amount for materials on their invoice and then add on VAT at the end...then when my client claims back the VAT, the net VAT position would be nil.

For example, if they charge £1000 for labour and the total GROSS material cost is £360, they would set out their invoice like this:

Labour                                       1000
Materials (NET)                          300      
NET Total                                 1,300
Plus VAT @ 20%                        260
TOTAL                                      1,560

So on the materials element, the output VAT would be £60.00 and they would claim back £60.00, leaving them in a nil VAT position.

Last quarter we had no problems and my client seemed to understand this concept, but now they are questioning it and saying things like 'if we have to pay over the VAT element of the materials then we're never going to make a decent profit' - they want to recharge the gross amount to their customers for the materials, NOT declare any output VAT on that...and then they want to claim back all the VAT. Which to me seems wrong.

But I could be totally wrong because now I am doubting myself and all the rules have become scrambled in my head (!)...I am sure there is a simple answer to this and would be very grateful if anyone could shed some light on it!

What is the correct way to account for output and input VAT here?

Many thanks in advance

 

 

Replies (7)

Please login or register to join the discussion.

avatar
By spidersong
04th Oct 2018 13:20

The simple answer is it's only a disbursement if the client is liable to the wholesaler for the materials, so if your client is buying them and then incorporating them, if your client is using their own account, if your client is buying in bulk, in short if your client is doing anything other than merely putting a seller of materials and the homeowner in touch and then going and picking up the homeowners purchases bought on the homeowners account, then they're not doing any disbursements.

Your client buys in what they need to do the job and every penny they receive should be subject to an appropriate VAT charge (either taxable for most sales or possibly Zero rated when incorporated in a new home).

Do they really think all their clients should get all their materials with none of them paying VAT on any material? If it worked like that then the government would never take any VAT in 0n any goods there'd only be VAT on services. Tell them to buy a car or Van and see if that's the case!

The simple answer is they buy stuff, they claim the VAT back, they sell the stuff and their services with it and charge VAT on the whole lot.

The further simple answer is if they can't make a profit doing that then they need to give it up and find an employed job with someone who can.

Thanks (0)
By Tim Vane
04th Oct 2018 13:39

Yes there is a simple answer. Charge customers VAT on everything. Claim back what you pay.

Simple and, incidentally, correct.

Thanks (0)
RLI
By lionofludesch
04th Oct 2018 14:56

I can see why this query would be posted anonymously.

Crazy idea.©

Thanks (0)
Portia profile image
By Portia Nina Levin
04th Oct 2018 15:05

WTAF?

Thanks (0)
paddle steamer
By DJKL
04th Oct 2018 15:14

Far too complicated.

There is a cost reselling purchased in materials, from the time taken ordering, collecting, financing costs, extra record keeping etc- this needs rewarded.

When we did more property maintenance work for third parties I charged labour at an hourly rate and recharged material with a profit added on rate, which often was close to 20%, all your client appears to want to do is this and provided what he charges ties up with what he is quoting/estimating there is no issue, surely.

"if we have to pay over the VAT element of the materials then we're never going to make a decent profit'

The above is a pricing issue not a vat issue.

Thanks (0)
RLI
By lionofludesch
04th Oct 2018 15:19

I've never heard such nonsense.©

*Could be true this time.

Thanks (0)
avatar
By SXGuy
05th Oct 2018 06:19

No no and more no.

Thanks (0)