VAT on VAT for building materials

Legally, does HMRC require me to charge VAT on materials that I have already paid VAT on?

Didn't find your answer?

I have never found a definitive answer to this question.

Let's go with this. I am a UK, VAT registered business.

Construction Job.

Materials: £1000 + VAT £1200 (Already paid by me)
Labour: £1000 + VAT £1200 (charged to my client.)

Legally, is my minimum bill £2400 or £2640?

VAT on VAT for the Materials.

There is lots of online opinion on this about markups etc. I Don want to hear it, legally, what does HMRC require me to do here?

Replies (17)

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Scalloway Castle
By scalloway
26th Apr 2022 20:10

If you are charging the client for materials at cost then you bill is:

Materials £1,000
Labour £1,000
Net £2,000
VAT £400
Invoice £2,400

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Replying to scalloway:
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By Mosshead
26th Apr 2022 20:34

Thank you Scalloway.

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By Paul Crowley
26th Apr 2022 20:18

"There is lots of online opinion on this about markups etc. I Don want to hear it, legally, what does HMRC require me to do here?"

Charge VAT at the correct rate on the invoice you render

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Replying to Paul Crowley:
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By Mosshead
26th Apr 2022 20:36

Thanks Paul. I get this one.

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By Leywood
26th Apr 2022 20:35

[quote=Mosshead]

‘I Don want to hear it’

Charge the correct vat.

Don’t know what dodgy sources you have been using, best one would be your Accountant.

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Replying to Leywood:
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By Mosshead
26th Apr 2022 20:40

There's always one (some) of you in any forum on any subject. Thanks for posting.

'I don't want to hear it'

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Replying to Mosshead:
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By Leywood
26th Apr 2022 21:47

There are always freeloaders like you who come on here with attitude.

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By Sandnickel
26th Apr 2022 21:12

HMRC don't care what you charge the client so long as you add the appropriate VAT onto the bill.

In your scenario it is up to you (and of course the agreement with the client) whether you charge your client £1000 or £1200 for the materials you have purchased. HMRC will just be want to see £200 or £240 respectively going onto your VAT return and have no further interest in the matter.

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Replying to Sandnickel:
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By Mosshead
26th Apr 2022 22:03

Tremendous. Thanks Sandnickel.

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By David Ex
26th Apr 2022 21:21

Mosshead wrote:

Legally, does HMRC require me to charge VAT on materials that I have already paid VAT on?

I’m not a VAT specialist but aren’t you supposed to recover the VAT on your materials?

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Replying to David Ex:
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By Mosshead
26th Apr 2022 22:13

Yes.

I am sure you are aware of the ridiculous and continuous increase in building costs. I am trying to find a legal, happy medium for me and my client. I know what I want to do but I didn't know until now whether it was legal or not so thank you folks.

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Replying to Mosshead:
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By David Ex
26th Apr 2022 23:25

Mosshead wrote:

Yes.

I am sure you are aware of the ridiculous and continuous increase in building costs. I am trying to find a legal, happy medium for me and my client. I know what I want to do but I didn't know until now whether it was legal or not so thank you folks.

No idea what you mean but VAT has nothing to do with rising material costs. You were complaining about VAT on VAT which isn’t how the system works - if you are doing it right.

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Replying to Mosshead:
RLI
By lionofludesch
27th Apr 2022 06:32

Mosshead wrote:

Yes.

I am sure you are aware of the ridiculous and continuous increase in building costs. I am trying to find a legal, happy medium for me and my client. I know what I want to do but I didn't know until now whether it was legal or not so thank you folks.

It's "legal" to sell the materials for less than you paid for them, if you want. Not that I'd recommend it. HMRC want a sixth of what the customer pays. Very straightforward.

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VAT
By Jason Croke
26th Apr 2022 21:37

If you can reclaim VAT on your purchases then the cost to you of those purchases is £1,000 so makes sense to charge your customer £1,000 plus VAT of £200 on your invoice to the customer.

Likewise, your labour would be £1,000 plus £200 VAT hence invoice would be for £2,400.00 gross.

There is nothing to stop you from actually charging VAT on top of VAT but you'd simply be increasing your price and possibly lose a customer.

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Replying to Jason Croke:
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By Hugo Fair
27th Apr 2022 00:03

... and nothing to stop OP from sticking a 25% handling charge on the materials (so invoicing £1,250 + VAT) - or indeed from electing to subsidise the cost of materials (say by invoicing for £900 + VAT).

The point is that, as a VAT registered trader, the cost of materials is £1,000 not £1,200 (as the £200 will be reclaimed as input tax) ... and VAT will be added to whatever sums (for materials & labour) are invoiced to the client - irrespective of whether OP is making a loss or profit or just breaking even on the materials.

In other words ... there is no "VAT on VAT"!

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Replying to Hugo Fair:
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By David Ex
27th Apr 2022 00:41

Hugo Fair wrote:

In other words ... there is no "VAT on VAT"!

I certainly couldn’t see it. Wonder who completes the OP’s VAT returns.

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By rmillaree
27th Apr 2022 08:29

Your questions are somewhat scary - warning vat can be confusing at fisrt so hard work needed - ignore all "gossip" about what can be done - specifically never trust what any mate or other builder says ref vat !!

The only thing that really matters is that if you supply anything on standard rated job you charge vat on the lot generally speaking - its that simple. what you charge before you add vat on is 100% up to you there is no right or wrong!

You also need to account for vat on any "supplies" you may have made where customer may have paid your "supplier trade accounts" - if building supplier invoice is made out to you - you have ongoing vatable supply even if you customer turns up and pays down your trade accoount - best to copmpletely avoid doing this if you want to make life simple.

Note this means you do need to include vat on pass through costs - that have no vat ! - whetehre you paid vat on your costs is normally"irrelevant"

subcontractors costs with no vat
materials you have bought that you claimed no vat on

You can charge whatever you want but if its standard rated supply alwasy add the 20% vat on - price can be anything as long as vat is added.
Eg you buy materials £90 no- vat - you can charge your customer £75+vat = £90(you will be losing out) - you can charge £90 + vat (no profit) or your can charge £100+vat (profit made) - only thing that matters ios that the 20% vat is mandatory

Do ALL your calcs ref sales and costs "net of vat" ignore the vat (but be aware that the customer probably is only interested in vat inclusive price if they are not in business!!!!!) and life is simple - vat just passes through like my last pay cheque before xmas - in and out before i know it !

Finally be aware of vat leakage - and never get atempted to fiddle stuff to avoid vat leakage.

Ie if you use non vat registered joiner and bill customer for joiner - you will be losing out on vat compared to that joiner providing services direct to customer at same cash cost to your customer. It should ideally always be clear upfront to all parties how that will work. Either take the hit (and make life easier for customer one inclusive bill) or stay away from getting involved in the pricing (quality control) and "cash handover" ref work of others who may be billing client "direct"

PS get a good acountant who keeps you on straight and narrow and who can explain stuff to you on ongoing basis.

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