Advice needed - Sub Contrating out Work

Smcgie · 13-06-2009 06:15PM #1

Hi All,

Basically i am a sole trader and i took on with a large job recently, were i contracted out the whole job and then sub-contracted out any work that i couldn't do to two other contractors.
For example - I have in total received €10,000 for the job and €7000 of this is to be paid to subcontractors and the rest is my profit.
My confusion is with the VAT payment. I am VAT registered and so too is one of the contractors, the other is not vat registered.

I have taken full payment for the job 10,000 and am now going to pay the sub-contractors. My question is in relation to my accounts what should i be recording.

Should it be my company has turned over 10,000 and that then the sub-contractors have been paid out of that? Or Is it that i have turned over €3000 and the rest is not to be included in my accounts.

I also understand that there is a VAT rate of 13.5% for some sub-contracting, but i am not entirely sure on this.

If anyone, is familiar with this situation and can help id really appreciate it, thanks
S

dbran · 13-06-2009 08:15PM

Hi Smidie

Careful here

Since 1 September 2008 new rules apply in regard to the payment of subcontractor VAT in that it is accounted for under the so called reverse charge mechanisim.

1) The subcontractor that is registered for VAT will give you a VAT invoice but with no VAT on it. On the invoice should appear the words "VAT ON THIS SUPPLY TO BE ACCOUNTED FOR BY THE PRINCIPAL CONTRACTOR" You pay the subcontractor the amount net of VAT and if RCT is deducted it is calculated on this figure. YOU must calculate the VAT which is payable on the subcontractors invoice (13.5%) and add it to the VAT on the sales on YOUR VAT return. You are simultaneously allowed to claim an imput credit for the same amount on the subcontractor VAT on your purchases. The effect of this is that you are effectively collecting the subcontractor's VAT on behalf of the revenue.

2) For the subcontractor who is not VAT registered you pay him in the normal way and deduct RCT if appropriate on the amount that you pay him.

3) You should record the 10000 as sale and (if this is the net amount) you should charge VAT at 13.5% on this amount ie 1350. You total invoice to your customer will be 11350. You will be paying the subcontractors 7000 (if this is the net amount) and this is recorded as a purchase. Your profit is 10000-7000 =3000 (again assuming the figures are all net of VAT). You will owe the VAT man 1350. If the 10000 is gross then you need to get out a calculator to work out the relevant amount of VAT.

Hope this makes sense.

DB

Smcgie · 14-06-2009 10:27AM

dbran wrote: »

Hi Smidie

Careful here Since 1 September 2008 new rules apply in regard to the payment of subcontractor VAT in that it is accounted for under the so called reverse charge mechanisim.

1) The subcontractor that is registered for VAT will give you a VAT invoice but with no VAT on it. On the invoice should appear the words "VAT ON THIS SUPPLY TO BE ACCOUNTED FOR BY THE PRINCIPAL CONTRACTOR" You pay the subcontractor the amount net of VAT and if RCT is deducted it is calculated on this figure. YOU must calculate the VAT which is payable on the subcontractors invoice (13.5%) and add it to the VAT on the sales on YOUR VAT return. You are simultaneously allowed to claim an imput credit for the same amount on the subcontractor VAT on your purchases. The effect of this is that you are effectively collecting the subcontractor's VAT on behalf of the revenue.

2) For the subcontractor who is not VAT registered you pay him in the normal way and deduct RCT if appropriate on the amount that you pay him.

3) You should record the 10000 as sale and (if this is the net amount) you should charge VAT at 13.5% on this amount ie 1350. You total invoice to your customer will be 11350. You will be paying the subcontractors 7000 (if this is the net amount) and this is recorded as a purchase. Your profit is 10000-7000 =3000 (again assuming the figures are all net of VAT). You will owe the VAT man 1350. If the 10000 is gross then you need to get out a calculator to work out the relevant amount of VAT.

Hope this makes sense.

DB

Thank you for an excellent detailed reply

Smcgie · 15-06-2009 06:34AM

In relation to the vat rate I charge 21.5% how does this work in relation to the 13.5% ... Is this a special service rate for subcontractors?
Thanks

dbran · 15-06-2009 08:48AM

Smcgie

I presumed that you were working in the construction industry as you said subcontrators. If so the rate is 13.5%. If you are working in another industry then this changes things somewhat.

DB

Smcgie · 15-06-2009 11:03AM

Well its construction related - retrofitting and energy upgrading of buildings, would it fall under the 13.5%?

Another question, who claims the vat back on materials / supplies from reading your post I persume its me.

dbran · 15-06-2009 12:22PM

Hi

Well this would be 13.5% as it is construction. If the cost of those items which are at 21.5% (ie the materials) are more then 2/3rds of the overall contract value then the rate you charge will be 21.5%.

So for example if the sales invoice you raise is for say 300 and the cost of the materials which are at 21.5% is €250 then your invoice is at 21.5%. If the cost of the materials is 150 then your invoice will be at 13.5%

Regarding claiming back the VAT on materials, whoever the invoice is made out to gets to claim the VAT.

DB

Smcgie · 15-06-2009 12:31PM

Thanks again, you have been extremely helpful.

Kingkong · 16-06-2009 01:05AM

No one mentioned RCT. If ur in the construction industry you need to get the C2 card of the sub contractor or deduct 35% off payments made. Check revenues website for more info

onedmc · 17-06-2009 08:39AM

dbran wrote: »

Hi

Well this would be 13.5% as it is construction. If the cost of those items which are at 21.5% (ie the materials) are more then 2/3rds of the overall contract value then the rate you charge will be 21.5%.

So for example if the sales invoice you raise is for say 300 and the cost of the materials which are at 21.5% is €250 then your invoice is at 21.5%. If the cost of the materials is 150 then your invoice will be at 13.5%

Regarding claiming back the VAT on materials, whoever the invoice is made out to gets to claim the VAT.

DB

Isn't there some rule about if the materials are over 50% of costs then its not a service but supply of material and charged accordingly (21.5%)

dbran · 17-06-2009 08:53AM

Hi

Oncedmc- It's not 50%, it is 2/3 which is the rule I described.

Kingkong - You are quite right regarding RCT. I did touch on this in my opening reply but as OP was only asking about VAT I did not go into it.

Kind Regards

DB

fiscalstudent · 17-06-2009 04:37PM

wow, just wanted to leave a quick note to say this is the best answer I have seen to any question on boards. Comprehensive, to the point and extremely helpful. It is contributors like dbran that make this forum more than simply a messageboard but a useful business tool.

Advice needed - Sub Contrating out Work

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