VAT Registration query

awwallace22

Hi,

Ive got a complete and utter mental blockage and this question is probably so simple and so stupid - That Monday feeling I think :confused1:

I have a client who is self employed. He has earnt £66,000 from CIS income (before CIS deductions), in addition to this he has had £6,000 re-imbursed in expenses, so the total gross income for year is £72,000.

As his income has gone over the VAT threshold he should have registered for VAT but something inside me is niggleing saying that because of the £6000 paid as reimbursed expenses he was actually under the threshold.. therefore does not need to register!!! But then again he should register as total income is over...

OH HELP MY BRAIN HURTS :crying:

farmergiles

awwallace22 wrote: »

Hi,

Ive got a complete and utter mental blockage and this question is probably so simple and so stupid - That Monday feeling I think :confused1:

I have a client who is self employed. He has earnt £66,000 from CIS income (before CIS deductions), in addition to this he has had £6,000 re-imbursed in expenses, so the total gross income for year is £72,000.

As his income has gone over the VAT threshold he should have registered for VAT but something inside me is niggleing saying that because of the £6000 paid as reimbursed expenses he was actually under the threshold.. therefore does not need to register!!! But then again he should register as total income is over...

OH HELP MY BRAIN HURTS :crying:

My understanding is that his income is £66,000. The re-imbursed expenses are not income, they are, as you state, a re-imbursement. Therefore they are not income.
He has probably bought materials for some of the jobs and had the cost refunded. Provided the re-imbursement equals the expenditure, this cannot and should not be classed as income.
Therefore, in my view, your client has not exceeded the threshold yet. If he is going to continue to earn at the same level then he should consider registering. He will then be able to claim back the vat he incurrs in performing his contract.
Unless one of my more esteemed collegues has a diferent view.

Kind regards
Pteter

JodieR

Sorry FG but I don't think I agree with you there.
'Re-imbursed expenses' sounds much more like a term used for an employer/employee relationship which is probably why you're getting confused.
What exactly are the expenses he's being reimbursed for? From the amount involved I would assume that it relates to materials. I've had a similar (but not exactly the same) discussion with the VAT helpline, and they asked the question 'who's takes responsibility for the materials?' so, for example, your subbie bought & installed a boiler which failed after 2 weeks, would that be the contractor's problem or the subbie's? As the subbie has probably bought it on his trade account it'll probably him who'll have to arrange to have it repaired/replaced. Therefore the subbie has supplied the contractor with the goods and therefore he should have raised an invoice for the goods and this should be included in his turnover when considering the VAT registration threshold (even if he hasn't made a profit on the sale of the materials).
Where it might become a little grey is if the contractor is sending him out to buy specific items which are purchased for cash (ie no-one's name appears on the invoice) and simply re-imbursing him, but at 10% of his labour costs this seems unlikely to me.