a VAT question....

johnjay

HI Everyone,

I'm in a bit of a pickle, I have a regular 9 to 5 job for which I get a salary. However, in the next few weeks I am doing a nixer for a different company. For this nixer I will be supplying approx 8k worth of computer equipment (on which I will make about €1,000 profit) and charging a further €1,500 to set the stuff up.

My problem is that I am not registered for VAT, and I presume the company that I am doing the work for will need a VAT receipt for this. Any ideas how I might get around this? Revenue’s website tells me that I shouldn’t register for VAT if I do less than €100k a year

My other option is to get my customer to get/pay for the hardware himself, but if I do this I will miss out on my cut.

Any suggestions would be appreciated!

dahamsta

First off, if you don't think it will create an issue, ask the company if they will accept an invoice without VAT specified. Some will, some won't, but you'd be surprised who will -- I deal with a very large company that has no problem with it at all.

If they won't, I guess you could ask if they'll accept an invoice from a colleague that is VAT registered, if you have one. If they will, and you have, all you have to do is invoice your colleague and have them invoice the company. Just make sure you give the middleman a few quid for their trouble, it makes good business sense in the long run.

HTH,
adam

Victor

Originally posted by johnjay
Revenue’s website tells me that I shouldn’t register for VAT if I do less than €100k a year

Where does it say that? Ther eis no lower limit for registering for VAT. However, when you pass to €20,000-40,000 mark you must register.

Potentially you could get the client to but the computers direct from your supplier and they can get the VAT back on that. Then there would be no VAT issue on your end, which would make no difference to them.

johnjay

Thanks Lads,

I seen it somewhere on the revenues guide so setting up a business about the 100k thing, I always presumed there was no lower limit too.

Yes, I can get my client to buy the hardware direct, but then he will know that I am buying them for €200 less than I am charging him! – I’d rather keep this information to myself!

I might just register for VAT in the hope I will get a few more nixers like this in the coming months.

Specky

Oh boy...alarm bells ringing here.

Hold on a minute, think carefully about your situation. Now, you may think I am being excessively cautious but my caution comes from years of experience. A few points:

1. How do you know you are going to make a grand on the deal if you haven't received a documented purchase order from the buyer? Never enter into a sale without having something from the buyer on paper, it is a contract of sales and sets out the terms and conditions of sale, what they will pay, what they are paying for, when they will pay and what happens if they don't pay. If you haven't agreed a price you can't enter into this contract and if you haven't told them whether or not they'll be paying VAT you can't agree a price.

2. Are you making €1000 with the VAT or without the VAT? I presume since you're asking this question you're making €1000 ex VAT. If you're only going to do this one deal it isn't worth registering for VAT.

3. €1000 on an €8000 equipment purchase is only 12.5% gross margin. That's very low. It's typical for suppliers to charge 15% handling even when they're just supplying-on product with no markup. Don't forget you're going to be responsible for the warranty of the equipment for 1 year. You're possibly going to have to pay carriage/courier fees to get the equipment to site etc. ok, maybe you'd pass these on to the client but you don't have a contract of sale to agree this so they can quite legitimately refuse to pay later. I'd be adding a bit more contingency margin. In all likelihood it'd cost the customer more than €1000 in administrative costs to purchase the equipment, they know that, so they're riding you 'cos they know you're doing it for nothing.

4. €1000 may sound like a lot (and maybe it is if you're making it every day) but it's nothing in business terms. If this is a legitimate business deal (and I'd steer well clear of a dodgy deal worth nearly €10,000 if I were you unless you can afford to flush that amount if it all goes wrong) it will have to be accounted for by the buyer, which means the details of the transaction will go in the accounts and eventually go back to the revenue commissioners. They then MAY find cause to follow up this transaction to ensure that all proper taxes were paid. If you make €1000 on the deal you mean that the €1000 goes in your pocket. You should then declare it and pay income tax on it (as with the consultancy fee you are being paid to set up the stuff). Are you happy to hand over a substantial portion of what you've made to the revenue? Are you happy that your current employer will find out about this? (they will if revenue find out because it will have to be reflected in your tax credits for the year). Just another small point there, are you sure you're not prevented from doing nixers by your current contract of employment? Worth checking. You don't want to find yourself in breech of contract and out of a job for a €2500 (gross) nixer.


I would be very very careful if I were you. It is not unheard of for companies to get work done on the side on the cheap and never pay. They know you have no power, they tell you not to bother with the paperwork to keep it all simple (which suits you because you don't really want your boss or the revenue finding out) then when they get the goods they bung you a few quid and tell you to sling yer hook.

If I were you I'd get them to buy the equipment themselves. You then don't need to worry about VAT, warranties, low margins or (potentiallY) waiting to get paid for months for something sitting on your credit card bill. Then charge them a little extra for the set up. It's much easier to get paid as you go (you're in their office, you show them what you're going to do and ask for the money. No money, no worky). It's easier to hide from the revenue (both for you and the customer, they may even be able to sneak it through on petty cash or whatever) because you'll be talking about a smaller amount, non-capital expense, maybe spread out on a pay-per-day basis.

With the margins you're charging the customer is getting a WAY better deal than they're going to get elsewhere. Don't sell yourself short. Trust me, it is better to walk away from work that pays you little or nothing. Don't be scared to go in with a decent rate for your services to begin with, if they want you they'll pay. If you value yourself cheaply then they will too and you'll be trapped in the low rate doldrums forever. If they want to bargain with you then give them a few percent off. You'll never get them to add a few percent on if you go in too cheap. Whatever you decide get it in writing before you do anything (and especially before you spend any money).

De Rebel

Get the client to purchase the hardware and pay for it directly; that sorts out the hardware warranty, VAT invoicing and a number of other issues.

Charge the client whatever the job is worth; it either worth €1,500 or €2,500. Make your mind up and stick with it. You will get no thanks if you go the other route and he finds out afterwards that you have screwed €1,000 out of him. If the job, including the handling (ordering, collecting, delivering, post-sales warranty) of the hardware is worth €2,500 - charge that amount and stop messing.

If your turnover is €1,500 or €2,500 there is no need to register for VAT., and revenue would not want you registered. You provide your customer with an invoice for the correct amount and he pays it - with no mention of VAT.

A further consideration. I'm not sure whether you intend declaring the €1,500 or €2,500 for income tax purposes. In your situation it should be declared. Be aware that if the amount paid to you exceeds €3,810 in one year, your customer (assuming that its a company), is obliged to declare the payment to you on revenue form 46G. If you invoice them for the hardware as well, you will certainly be over that limit. Revenue use that form to identify people who try to operate on a cash (i.e. tax evasive) basis.

johnjay

Thanks Lads,

I think I'll get him to pay for his own hardware, its the least risk for me!

Thanks again! - and if anyone ever needs any PC hardware...... haha!