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It is some years since I was VAT registered, when I was I did it differently depending on the customer.
For commercial customers who are themselves VAT registered I would show the ex-VAT price and then state that VAT is to be paid in addition, currently 20%.
For domestic and other customers who are not VAT registered I would show the VAT inclusive cost stating that it includes VAT which is currently 20% and may be varied as required by HMRC.
You need to be careful the government could actually increase VAT rate during term of the contract, if the VAT rate drops which is possible if the UK crashes out of the EU to ease the additional costs of tariffs due to us going onto World Trade Organisation trading terms, then customers will be very quick to say they want the amount of VAT reduced, if however the VAT rate increases the customer will want you to take the hit with them paying the current rate.
To sum up show what the customer will pay depending on if VAT registered themselves or not, but ensure they are clear that the VAT rate may vary.
Been there got the T-shirt, I have had to have discussions about the changes in VAT rates, many years ago we actually had customers asking to pay in advance to avoid a hefty increase in their bill due to changes in VAT on a certain date.
Andy
If you’re VAT registered, all services and supplies must incur VAT at the required rate applicable.
It’s normal to show ex vat price & vat amount per line item, but there must be clear narrative to show what is / isn’t including VAT.
Normal assumption is that domestic customers will focus on the VAT inclusive price and they are typically unable to reclaim as it’s an end user, luxury tax.
Commercially, they’d focus on the ex-vat price being to reclaim the VAT amount.
Get this wrong and your quote could look too cheap or too expensive and leave you liable the VAT amount,
If you’re using a software accounting package this should make it clear(er)
P.s. you labour figure is liable for VAT - so it’s unclear if it’s inc or ex vat ?
Also, Your materials cost doesn’t work out
£840+vat = £1,008?
Our subscription to Trading Standards Buy With Confidence scheme means that they require us to show the net amount plus the vat amount and then the gross amount.
I think it is best pactice to do this regardless of any subscription but as long as you state that the total amount includes VAT @20% then that is sufficient. If I have to do this (if there are varying options of materials/ services within our quote) then I highlight 'Including VAT @20%' in bold.
Katie
Being an older guy over the years I have had to deal customers when the applicable VAT rates have been from memory 7.5%, 10%, 12.5%, 17.5%, 20% and zero percent.
Do not assume that the VAT rate is permanently fixed or let your customer assume that. The VAT rate is set by the Chancellor on behalf of the Government, it can be changed overnight, if you are VAT registered your final invoice total is up to the government not you, if they increase the VAT rate someone has to take a hit if the customer is not VAT registered, either the customer pays the higher rate or the contractor effectively discounts the quoted price.
So when, as Michael is, you are preparing a quotation for work that will be invoiced at a future date ensure that the customer is fully aware that the applicable VAT rate will be applied.
Andy
It's OK Michhael, it can take some practice to get the head around it.
None of the above the way I read it. Assuming the labour is subject to vat , and the 840 figure is correct then it's 840+vat plus 2500+vat. Vat at 20% takes this to £4008 total.
Alternatively if the £1050 figure is correct its £875+vat plus £2500+vat, giving £4050 total.
Domestic customers are generally only interested in the final figure, so verbally I give a total figure inclusive of vat. The invoices show the various services ex vat, then the vat amount, then the final total figure.
On materials, it looks like you've taken 20% of £1050, then taken it away to give £840. This is not correct. £1050 is £875+vat.
To take a figure inc vat @ 20% and work out what it is plus vat then multiply by 100/120 or 0.83333.
To make it simple for yourself, get a calculator with a tax button like:
https://www.ryman.co.uk/ryman-14-digit-calculator-dx-14csmtax
you can set the vat rate to 20%, then it will tell you total + vat or total - vat.
Hi Michael
In simple terms just work out your materials and labour costs excluding vat and then just put on the quote that figure + vat and in your terms and conditions state that vat will be charged at the prevailing rate
So for example your quote should read inc all labour and materials = £3340 + vat ( which is £4008 inc vat @ 20% current rate)
You should ideally have another bank account to put all the vat money you have charged on labour after deducting the vat you have paid on materials into so its saved and ready for the vat man once you do your quarterly return but im sure your accountant can explain all this to you in detail when they are back from there hols
Best of luck Torin