VAT question

[elaborations]

A quick question about VAT.

We started a web development project before we were VAT registered. The client was a distant family member however she did sign the terms and conditions. Now the project has come to an end, we are VAT registered and so on our invoice we have included the VAT. She is refusing to pay the VAT saying that the price we agreed was what she was going to pay because we weren't VAT registered at that time.

Any help would be much appreciated.

Thanks

[openmind]

I'm not an accountant but she is, AFAIK, obliged to pay the vat element. If she is kicking up a fuss though I would suggest adjusting the final invoice.

eg. the final bill is 400 + vat, adjust it to £340.43 + vat = £400 inc vat

If the total project was £800, she paid a £400 deposit and this is the final £400 then she does have a point as she would not have paid VAT on the first invoice so she will be out of pocket now you are vat registered.

I'd say take the hit, reduce her invoice by 17.5% and never mix business with family! I've done it in the past and regretted every moment!!!

[Martin]

You will never win with family, as Phil said don't mix the two no matter how much of a good deed you feel your doing.

The best bet would be to take the hit on the VAT yourself, and learn from it... Make all future clients very clear of the final price.


Martin

[elaborations]

have definately learnt the hard way - I just want to know whether her knowledge of accounting is right, she says that we dont have to pay the vat anyway because we started work before we were vat registered.

[openmind]

No she is wrong. Any invoice you issue after the date you became vat reigstered, regardless if its a new invoice or a final payment must show the vat due.

[elaborations]

thanks for that!

[Martin]

INAAB (I'm Not An Accountant But)

She's wrong.

Taken from the Customs & Excise website

When must I register and start charging VAT?

The supply of any goods and services, which are subject to VAT at any rate are called taxable supplies whether you are VAT registered or not.

If the value of your taxable supplies is over a specific limit, you need to register for VAT, unless your supplies are wholly or mainly zero rated in which case you may apply for exemption from registration. The limits are shown in the supplement to Notice 700/1 Should I be registered for VAT? You may be charged a penalty if you register late. The easiest way to register for VAT is by using our online Registration service.


Martin

[elaborations]

what is zero rated vat? Our printer sent us an invoice for some brochures with zero rated vat and I've always been curious about that.

[Martin]

Certain products you pay no tax on, I'm not completely sure which but I know some in printing are 0-tax as I read about it on YCGI..

I just downloaded the PDF about it, it's 256 pages long so haven't read it yet

http://www.hmce.gov.uk/channelsPorta...yType=document

[richard.h]

IMO you take the hit.

[elaborations]

thanks richard - we will be doing that....

btw, have you been reading 'free prize inside' re: the top secret logo?

[richard.h]

Originally posted by elaborations
btw, have you been reading 'free prize inside' re: the top secret logo?

Nope, it just comes naturally to me

More of an accident really, i won't be using it until i've paid Mark (Eagle Imagery) so i thought i'd mask it as a temporary solution.

[Adam]

If you agreed the deal at say £400 no VAT the deal was done. All you are doing is collecting a due payment.

I do not think VAT needs to be added. Then again HMCE could be open to fraud here so they may insist it is.

If it needs to be added, she agreed a price without and therefore you must take that hit.

There is a section on YCGI about VAT which I wrote but not complete so it may not be showing.

There is NO VAT and ZERO Rated VAT. Certain print items (generally leaflets) are ZERO Vatable. So the printer is still making vatable supplies and can therefore claim back input VAT (VAT he pays for his stuff). If he was making EXEMPT supplies, he could not claim back the VAT he paid.

ZERO rates vatable supplies DO HAVE VAT added, it is added at a rate of 0%. So whatever you sell, add 0% VAT. I say it like this because in theory they could change the percentage to 17.5% if they wanted. Not so with exempt supplies, that is harder to do and is things like books and kids clothes.

[James Smith]

Phil and Martin are correct here, if you are registered on the date you raise the invoice, VAT will need to be included on the sale. I think Adam is going off on one!

For anyone else in this position, think interim payments if you know you are going to register and haven’t yet. Ie a big fat stage payment before registration date would have resolved this problem as this needn’t have included VAT. This is also a good habit from a credit collection point if view, ie getting partially paid before you complete.

The VAT helpline is quite good for specific quries of this nature.

Regards,

[..DN..]

Hiya,
Again, I'm not an account but....

When you become VAT registered you can claim back the VAT you have been paying for the 6 months or so before you became VAT registered which is usually good as it means that you haven't been charging VAT but you can still claim VAT back on the goods purchased.
So by claiming back the VAT on goods bought in the 6 months prior to becoming VAT registered you will cover the hit you have to take on this project? Obviously depends on the value of the project and how much VATable goods you have bought lately!

Speak to your account about this.

DN