Can someone explain VAT registration to me?!

[TheBrilloPad]

I swear to god I have googled and tried to read previous threads but am still none the wiser.

I am a sole contractor, earning under the threshold, just setting up my company now TBH. I have just done a quote for some work and they have asked if I can do it through VAT so they can claim it back.

I'm not VAT registered and don't understand if I should register to get this job or if it will end up making my quotes more expensive.

So, in theory, I go to the shops and spend £1000 on materials for the job. I charge £1000 for my labour. I would usually quote a client the price of £2000.

But to be VAT registered, I would need to charge £2000 plus VAT (£2,400), yes? And pay £400 to HMRC. BUT I can claim back the VAT from the materials I bought at the shop (£200)?

Have I understood it right? So scenario A has me left with £1000 at the end (just my labour), but scenario B has me left with £1200 (my labour plus the VAT I claim back), BUTTT my quote is more expensive than someone not VAT registered. Am I along the right track?

I did speak with an accountant the other week and she glossed over it as "you don't need to register for VAT as you'll earn under the threshold" but didn't cover the implications of what happens if I WANT to register for VAT.

[Badbadbunny]

Voluntary registration only works if most of your customers are VAT registered and able to reclaim the VAT you charge them.

You'd have to charge VAT to all customers, so you make yourself 20% more expensive to those that aren't VAT registered, such as domestic customers, smaller businesses and exempt larger businesses (such as some charities/public sector organisations).

It sounds as if the waters are muddied because you're buying and supplying materials to your customers. A VAT registered customer can't reclaim VAT on materials you buy for them if you're not VAT registered as you're the one who's bought them - your customer doesn't have a VAT invoice from you nor your supplier, so it makes those materials 20% more expensive to your customer (as they can't reclaim the vat). That's why they want you to register for vat, to make it cheaper for them.

You have a few choices. If you make a mark up on the goods you buy for them, reduce the price so as to absorb the VAT yourself. Register for VAT yourself if most of your customers are VAT registered. Finally, tell your customer to buy the stuff directly themselves or buy it on their behalf, (i.e. get their name on the invoice), but in this latter case, you can't charge a mark-up or make any profit on the goods - it has to follow the rules as a "disbursement" for VAT purposes.

You really need to look at the full picture of your other customers, patterns of trading, business plan, etc., to see whether VAT registration is beneficial for you overall.

[Hekabe]

...And also the time it will cost you to add on extra record keeping and Quarterly VAT submissions.