VAT question - is this 'double VAT"

[cakeorwine]

I know....exciting

A plumber purchased an item for me from their supplier and fitted it.

The item cost £80 ex VAT - so £96 inc VAT

The bill details the cost of materials as £96

Then the bill has VAT added to the cost of the materials as £19.20, making the overall cost of the materials as £115.20

But surely VAT has been paid - so why charge VAT again?

Shouldn't the cost of the material be £80 plus VAT

The VAT goes to the Government - and I know there is some calculation between how much VAT you pay and how much you receive so it all balances out

Any VAT experts out there?

Id say he's charging you 20% mark up on the material cost

I thought if your plumber is VAT registered he would purchase the materials VAT free?

That's what I thought.

There might be a mark up - but I would have thought it would be a mark up on the ex VAT price, not the VAT price

No it’s not double vat - sounds like he’s just added on a 20% mark up for the convenience of him buying it. Any vat registered business would quote their net cost + VAT

I would have thought he would say
£80 materials
£x labour
total = £80+£x + VAT

The plumber can charge you whatever he likes for the parts though can't he and then add VAT onto that

Maybe it's coincidence that it's 20% on the net cost to him

Assuming there is no mark up

Then they would charge £80 for the material plus VAT

They wouldn't charge £96 (i.e. the price inc VAT) plus VAT

In other words, they would purchase the item VAT free from their supplier and then would charge me the VAT

Is that correct?

@cakeorwine
Materials will be £80 plus VAT (but plumber can recover the VAT on their vat return).

assuming no mark up, it should be

• materials £80
• labour £80
• total £160 plus VAT of £32 total £192.

He can charge you what he wants for the materials though - does it explicitly say he’s charging it plus VAT and not a mark up?

What does it actually say on the bill?

That's all I needed to know - that was the question I asked.

Thanks

(It relates to the question I asked when I rang him up before the work and what he told me. )

If the purchase of the item by the plumber qualifies as a "disbursement", then they should recharge the full cost to you (£96) and not charge VAT to you. In this case they also should not claim repayment of the VAT charged by the supplier as the part was bought on your behalf and not for use in the plumbers own business. He would need to itemise the disbursement separately on his invoice.

See: www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers

All conditions need to be met for this to qualify as a disbursement.

If it is not a "disbursement" then it is a "recharge". In this case the plumber purchased the item for use in his trade and it forms part of his overall supply to you and is subject to VAT, in the same way his services are subject to VAT. He can recharge at whatever cost he wants.

FYI: A plumber wouldn't purchase items "VAT free". They make a zero rated supply to a customer if it's a new build property but they are still charged VAT by the supplier and recover it via their VAT return.

“Vat free” doesn’t mean he just doesn’t pay the vat on it. It just means he can offset it against any vat he adds to his customers’ bills.

That's interesting.

Thanks

If there was an agreement for him to buy the goods on your behalf and supply them at cost price then you're correct. In that case it would normally be treated as a 'disbursement' for VAT purposes and the plumber wouldn't charge his own VAT on it. Under that situation he couldn't claim back the VAT he'd paid to the supplier himself.

As it is, assuming he's registered for standard VAT, he can claim back the VAT he's paid to the supplier so that's extra profit for him - as you've identified.

Alternatively he could be registered under the Flat Rate Scheme - in which case he can't claim back the VAT he's paid the supplier and the cost to him will be the full VAT-inclusive amount.

He could be trying it in or he might just be a better plumber than he is a VAT accountant.

Yep this…..but also bare in mind if he’s VAT registered he pays 20% of what his total bill to you is, back to the VAT man. Which means the VAT he pays back is always more than the VAT he’s claimed back for the parts….IYSWIM 🙂

He could be trying it in or he might just be a better plumber than he is a VAT accountant

Part of a big local company - so I would hope they know what they are doing.

I have used them for a while and have been impressed. But I don't like being ripped off - so I just need to know my facts when I have a conversation with them next week

You need an accountant to answer this. My understanding is that he must charge vat on the vat inclusive price. He’s making an onwards supply and that’s vatable.

If it's a big company, and it's them who have invoiced rather than him as a franchisee or something, then you can probably ignore the Flat Rate Scheme comment I made above. A big company wouldn't be eligible for the FRS.

@WednesdaysPlaits - Your understanding isn't quite right as costs can be passed on without VAT where they qualify as disbursements.

(When I say without VAT I mean by the plumber - the original VAT inclusive price can be passed on)

I think it's more likely he bought the part for RRP minus 20% (I.e. Trade price) which he would have access to as a professional and sold it on at RRP.

Or unless the plumber also used other materials which weren't included in the original invoice/receipt you saw? Is that a possibility?

The disbursement point is a red herring - even if it qualifies as a disbursement (which I don’t think it does - one of the conditions is that you were liable to pay for the part, which I doubt is the case, the shop couldn’t come after you for payment).

But anyway, it’s irrelevant.

No disbursement:

Part £80
labour £80
total plus vat : £192

disbursement
part £96
labour £80 plus vat = £96
total £192

treating something as a disbursement only actually makes a difference if there is no VAT on the item in the first place.

No other materials

It's a local company who I have used for a while so I am going to have a chat with them next week.

@Mushroo Whether the conditions are met for it to be treated as a disbursement, only the OP will know but it could well be that it doesn't qualify.

It would be advantageous in OP's scenario if it did qualify because the plumber is recharging the VAT inclusive cost (£96 plus VAT) and so it does make a difference. Your example assumes the plumber is only recharging the VAT exclusive price.

@MimiArm agree that whatever the plumber is currently doing is wrong! It should never be £96 plus vat. But that’s the case regardless of whether it’s a disbursement.

It’s either £80 plus VAT or just £96 as a pass through cost.