Charging VAT on Services

[Marx]

This is to do with charging VAT on services we offer.

I would appreciate some advice on how to explain to a client why he is being charged VAT. Sounds strange but the client is a foreign national and doesn’t understand why we are charging VAT at 20% for our services when we are sub-contracting some items of our service to others who don’t charge VAT.

For example, we charge £7000 + VAT. This price includes two items that we sub-contract to others who don’t charge VAT:

Structural engineer £1200
Survey £800

The client thinks we should not be charging VAT on the two items above, even though each item includes site visits, meetings and managing from our side.

Basically I would like to know how best to explain this to the client.

Thanks and I hope that makes sense.

[Generix]

Out of curiousity, why are the subbies not charging you VAT?

(I have a feeling I know, but want to hear it from you ;p )

[section 44]

To whom do the sub-contractors make their supplies/who is their customer?

[Generix]

To whom do the sub-contractors make their supplies/who is their customer?

haha! I know what you are getting at - but that would kind of mean the word 'sub-contractor' is used in error

[robbob]

Hopefully the link below will explain in enough detail how things work in relation to items that would be classed as disbursements and could possibly be charged to your customer without vat being charged, Unfortunately there are very few items that can be re-charged without adding the vat on but if you follow the rules then there may be some situations where a "non vatable recharge" can be made.
http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm

At the least if you show this info to your customer he should then at least be convinced that unfortunately vat needs to be charged on these invoices as you have done (presuming these services don't count as disbursements that can be excluded from output vat).

[Marx]

Thanks for the replies thus far.

As Generix infers, I am no doubt using the term sub-contractor in error so I will try explaining clearer below.

Builder is VAT registered
Surveyor is not VAT registered
Engineer is not VAT registered

Builder gives client all in price which includes the services of both the Surveyor & the Engineer. Builder charges VAT on the all in price, i.e. he doesn't consider that the Surveyor & the Engineer are not VAT registered. Is that correct and how should it be explained to the client?

Please let me know if I am not explaining myself properly.

robbob: Thank you for the link, which I'll look at now.

[robbob]

Hello Marx

You need to answer this question from section44

To whom do the sub-contractors make their supplies/who is their customer?

If you are their customer (it sounds like this is the case) then there will be vat applied to the whole of your your sales invoice to the individual that engaged your firm.
The only way to avoid vat being charged is for these "subcontractors" to bill your end customer directly.In this case it is normally sensible for you not to get involved in the financial transaction at all, although you can have certain "disbursements" where you do get involved - these must meet the exact criteria per the earlier link.

[Marx]

Hi robbob,

That's great and thank you very much.

One last thing, can you provide the direct link to the section 44 question please?

Thanks again.

[Generix]

Hi robbob,

That's great and thank you very much.

One last thing, can you provide the direct link to the section 44 question please?

Thanks again.

He mean's the forum poster who uses the name "section 44" - see the replies to your post above and you will see his response which robbob quoted.

He doesn't mean a piece of legislation or guidance from HMRC regards to "section 44".

[section 44]

I'll tell the guys to stand down on Project Teleporter.