VAT and Subcontracting

Colonel Hathi · Mar 1, 2011

Hi Can anyone advise?
I am a sole trader and not VAT registered.
I friend of mine is VAT registered and takes care of much of my installation work.
We are just working out how best to invoice.
I was going to withhold the 20% CIS from him and pay him the 80%.
He thinks though that if he invoices me through his company, I will also have to pay VAT to him (which he then pays to the TAX man).

Is there a way around this?

I dont understand how the same job attracts no VAT if I do it myself but effectively costs another 20% VAT if my friends company does the labour.

Any advice much appreciated.

Apollo · Mar 1, 2011

VAT is all about how much you or your company earn. the current threshold for VAT is £70,000. So if you earn more than that you need to be VAT registered. This changes with each Budget.

IMO the best way would be for you to invoice him that way as long as your under the threshold, you don't pay VAT

telectrix · Mar 1, 2011

if your mate is VAT registered, he's got to charge you VAT. either you bite the bullet and pay him the VAT and you've lost it, or register for VAT yourself and claim it back, but then you have to charge your customer VAT. or you could get a mate that's not VAT registered to do the work.

peck06 · Mar 1, 2011

Get your mate to open another company as a sole trader that purely does work for you, thus keeping him under the VAT threshold then there's no problem. although obviously he will have to have seperate PL ins for the two companies.

DaveyD · Mar 1, 2011

peck06 said:
Get your mate to open another company as a sole trader that purely does work for you, thus keeping him under the VAT threshold then there's no problem. although obviously he will have to have seperate PL ins for the two companies.

I would check with HMRC, YOU are classed as vatable if your turnover (not earnings) is over the current threshold. You can't just open another business to avoid or reduce. Tried it - they did not allow it.
Kind Regards, David

peck06 · Mar 1, 2011

I would check with HMRC, YOU are classed as vatable if your turnover (not earnings) is over the current threshold. You can't just open another business to avoid or reduce. Tried it - they did not allow it.
Kind Regards, David

Ok, get your point so maybe not a self employed sole trader but maybe if he opens up a company as a PLC. you can do it. Because VAT is based on a companies turn over not an individual's.

I only know you can do it as the builder I sub for (Big company been in business years VAT registered) they found they were losing domestic job because of VAT, example £30,000 extension on a house which the quoted a customer was 1 to 2000 under the next nearest quote but then pointed out to the customer its plus £6000 VAT, lost the job.

So now they have opened a second company with a very simlar name, same directors (different trading name) purely for domestic work so there is no VAT to pass on to the customer. Cleared it all with HMRC and done everything, like I said though they have had to take out extra insurance for the 2nd company though.

VAT is great when doing business between two VAT registered companies, not so great when you have to pass it on to joe public who can't claim it back.