Understanding VAT and how to charge it. First time ltd company after being soletrader

[2024]

Been working as a tradesman for 20+ years under the vat threshold. Im looking to set up a ltd company in a few months and will be paying vat however i dont know how to calculate vat into my invoices yet. Ill be hiring an accountant although this will be a few months away but looking to get a basic understanding of it in the next few months before i meet up with one.

My understanding of it(although i could be wrong) is that its a value added tax on any profits on materials, plant, labour. Below is an example of how i think its to be added to the invoive. Bear in mind im living in the rep of ireland where its 13.5% vat rates on construction services and 23% on materials.

materials is 51,414e ex 23% vat. 63,239 inc 23% vat paid for said materials.
Plant is 6665e ex vat . 7764 inc 13.5% vat paid for hire
labor is 33531ex vat. 38057 inc 13.5% vat paid on labor

I have already paid 23% to my supplier of materials and 13.5% to my local tool hire store. I will put 10000 profit on the materials, labor and plant so now my own vat bill will be 13.5% of my 10k profit along with paying 13.5% also on my labour which was 33531.

Total vat needed to pay to revenue for this job is 4526 for vat on labor and 1350 vat on the profit.

 

[Mottie]

When I was vat registered, I charged vat on the sales and claimed back the vat on purchases. You don’t just do it on the profit from jobs. You will do it on anything else you purchase and pay vat on. Tools, office equipment and supplies, rent (possibly), electricity, phone etc etc . I think I did it on a quarterly basis.

Forget the vat inc prices. Just look at what you paid excluding vat, put your profit margin on that and then add VAT on the whole amount at the appropriate rate.

* Just because you are a Ltd co, you still don’t have to be registered for VAT if you are under the threshold. If you are close to the threshold, some traders get the customer to supply their own goods and just charge vat on the labour element to keep you under the threshold. You could get them the goods at trade prices which they pay for and then add a bit more onto the labour element for yourself to make up for the loss of profit on the goods. This also helps with cashflow.

 

[bernardgreen]

When I was a sole trader I use cash accounting for my VAT accounting, Very simple.

VAT Cash Accounting Scheme

Cash accounting and VAT - eligibility, thresholds, joining and leaving the scheme

www.gov.uk

 

[2024]

When I was vat registered, I charged vat on the sales and claimed back the vat on purchases. You don’t just do it on the profit from jobs. You will do it on anything else you purchase and pay vat on. Tools, office equipment and supplies, rent (possibly), electricity, phone etc etc . I think I did it on a quarterly basis.

Forget the vat inc prices. Just look at what you paid excluding vat, put your profit margin on that and then add VAT on the whole amount at the appropriate rate.

* Just because you are a Ltd co, you still don’t have to be registered for VAT if you are under the threshold. If you are close to the threshold, some traders get the customer to supply their own goods and just charge vat on the labour element to keep you under the threshold. You could get them the goods at trade prices which they pay for and then add a bit more onto the labour element for yourself to make up for the loss of profit on the goods. This also helps with cashflow.

I have been working under the threshold for many years here in Ireland. The vat threshold rate is 37500euro. Once you take your costs into consideration, it doesnt leave you with much. Say i was 35k a year, 5 k in costs for insurances,, tools, accountant, diesel etc.. leaves me with 30k. 25% of that is 7.5k and taking into consideration some tax allowances, it leaves me with 450-500euro a week. If it was 80k like in the uk id be happy tipping along as i am but want to increase my earnings. I could stay as a sole trader and start charging vat and go into the next tax bracket of 40% but ive been approached about pricing some jobs worth 150k for materials and labor so need to work out how to charge vat. Ive found a good site for estimating my jobs however its a uk based site and it calculates the uk rates of vat so will have to try and work it out myself to add to my invoices. On that estimating site, i can change the rates of vat, but cant change it separately. Its abit of a headwreck tbh.

 

[Mottie]

I have been working under the threshold for many years here in Ireland. The vat threshold rate is 37500euro. Once you take your costs into consideration, it doesnt leave you with much. Say i was 35k a year, 5 k in costs for insurances,, tools, accountant, diesel etc.. leaves me with 30k. 25% of that is 7.5k and taking into consideration some tax allowances, it leaves me with 450-500euro a week. If it was 80k like in the uk id be happy tipping along as i am but want to increase my earnings. I could stay as a sole trader and start charging vat and go into the next tax bracket of 40% but ive been approached about pricing some jobs worth 150k for materials and labor so need to work out how to charge vat. Ive found a good site for estimating my jobs however its a uk based site and it calculates the uk rates of vat so will have to try and work it out myself to add to my invoices. On that estimating site, i can change the rates of vat, but cant change it separately. Its abit of a headwreck tbh.

Blimey. I’ve just looked it up and it looks a bit of a minefield. The rest of the EU seems to be around the same.

 

[2024]

Blimey. I’ve just looked it up and it looks a bit of a minefield. The rest of the EU seems to be around the same.

Yeah its complicated to say the least. Still thou, if i know how vat is calculated then i should be able to work it out. I used to think if i bought items at say 100e, with 23% vat on top from the supplier which is 123 total. Then when i sell it on for 173 (50e profit), i then add 13.5% on top of 173e although someone mentioned to me that i cant charge vat ontop of vat and said i should only charge 13.5% ontop of the 50e profit i made and the total comes to 100 + 50 + 13.5% on the 50 which is 6.75e add these together and get 161.75e. Or now as what the poster above said, its of the total sale which is 13.5% of 150 which is 20.25 which brings us to 170.25euro.

 

[Mottie]

Yes, ignore the vat inclusive purchase figure. If you buy something for €100, add whatever profit onto it that you want then charge vat on the whole amount so $100 + €50 = €150. You then add vat onto the €150 and charge that to the customer.

When you are settling your vat account, you will deduct the vat you paid on €100 from the vat you charged on €150 and the remainder is what you pay. That’s on that item only though and you will also deduct vat on any other expenses you paid for the business. On startups where you pay out a lot up front for equipment etc and do very little work, you may pay out more vat than you take in which case you get a refund.