VAT - how to broach it with clients

[KellyWithABigBelly]

I am self employed and invoice clients through a limited company. This means I need to add VAT to invoices.

My clients are small and I’m always worried they won’t want to use me because of the extra 20% so I end up being apologetic about it.

Instead of sounding professional I say things like “I’ve got a limited company... so do you mind awfully if I invoice you that way... but that means VAT... I’m terribly sorry... so is that okay?” I end up sounding like a little girl.

How can I word it in an email/conversation so I let them know I have to charge VAT but don’t sound apologetic about it?

Don't apologise. Just quote a price of X plus VAT at the outset.

It's not correct that you have to charge VAT just because you are a company, it's linked to turnover and has to be paid by sole traders too with a turnover of £85k.

I'd just be factual, the price is X, which includes Y VAT, or even don't mention it at all, as a customer of most businesses we don't get VAT mentioned to us. It is difficult when you're concerned about pricing, but it may be better to talk about the features and quality of your product / service to justify this.

I’d state the price is £x which includes vat. It won’t change the end result, but will explain why your prices are higher than those not vat registered.

As PP said vat is linked to turnover currently 85k in any 12 month period.
but if you are registered all you need to say is its price plus vat. why would you apologise for government fiscal policy?

Agree with pp about turnover etc.

Who are your customers?

If you are below the limits and selling to consumers I would de register.

Conversely other businesses might expect you to be vat registered.

Flat rate scheme might help you too.

Don't worry about it. People know about VAT it's not your fault. Quote prices as £xxx excl VAT because you can't predict if the VAT rate will go up or down and you do want it to look like a price change if the rate changes.

When choosing B2B suppliers, the ones that charge VAT aren't necessarily less attractive than the ones that can be VAT free. A business that charges VAT feels more professional as they must have reached the minimum turnover for VAT so have a reasonably broad customer base. A non-VAT charging firm may be too small to survive long-term and may be fiddling their books to avoid reaching the VAT threshold so I may be a bit more cautious about choosing them. Of course it is irrelevant to any B2B customer who is themselves large enough to charge VAT to their own customers so it's only the small businesses that even care.

A business that charges VAT feels more professional as they must have reached the minimum turnover for VAT so have a reasonably broad customer base

Nope any business can register for VAT.

“I’ve got a limited company... so do you mind awfully if I invoice you that way... but that means VAT... I’m terribly sorry... so is that okay?”

Nope, they'll think you don't know what you're doing as they may well know that being a limited company doesn't mean you have to charge VAT.

If you're VAT registered, just clearly show it on quotes/invoices - no need to apologise or explain - it's reality. If you've mistakenly registered by not understanding limited companies, then deregister if it's of no benefit to you.

Please don't say that as it's completely wrong!! State your prices either inclusive of VAT or £X + VAT and make sure your invoices are correct and say nothing else.

That is a fairly ineffective communication style. It just invites people to walk all over you. You need to be assertive.

www.cci.health.wa.gov.au/Resources/Looking-After-Yourself/Assertiveness

Also, like pp said, is your turnover actually above the threshold for VAT registration? Operating through a limited company doesn't mean you have to be VAT registered - there are plenty of massive companies who aren't because their trade is an exempt service. It's about what you do and what your turnover is, not the entity you use. (You could have to register as a sole trader if your turnover was high enough.)

...I’m always worried...

Also, I think that's an internal issue of your own. Quote your prices clearly: £x + VAT if to other businesses or just £x (incl VAT) if to consumers as that will be clearer. If they don't want to pay that price, a groveling advance apology from you won't change that!

It's not the big deal you're making it into.

Thanks for everyone’s replies. The nature of my work means I don’t have set prices, clients offer me an amount per project. So for example they would say “The job is x and the rate is £100 per day.” Then I have to go back and say “Okay, but I will need to charge you £120 a day instead because of VAT.” Which seems a bit awkward but like pp have said it may only be awkward in my head. And yes, I do need to be VAT registered unfortunately.

Business to business sales always work in prices before vat.

A rate of 100 per day should automatically mean 100 plus vat to any business.

Unless you think people have chosen your business because they are not registered themselves.

@topcat2014

Business to business sales always work in prices before vat.

A rate of 100 per day should automatically mean 100 plus vat to any business.

Unless you think people have chosen your business because they are not registered themselves.

Agree - the purchase orders for our contracts are always excluding VAT. We add on VAT which can look like the PO value has been exceeded - but it hasn’t - it always gets paid. One cent over the PO for net of vat Value and it will get rejected.

I expect to pay VAT to be honest but I do like seeing x +VAT as I can then do a comparison against companies not charging VAT.

If B2B then the quote should at least be clear that it's "plus VAT". If B2C then it should be clear that it is "inc VAT". Avoid unclear terms such as "and VAT" which could be meant either way. Far better to be clear and avoid confusion for everyone.

@KellyWithABigBelly

Thanks for everyone’s replies. The nature of my work means I don’t have set prices, clients offer me an amount per project. So for example they would say “The job is x and the rate is £100 per day.” Then I have to go back and say “Okay, but I will need to charge you £120 a day instead because of VAT.” Which seems a bit awkward but like pp have said it may only be awkward in my head. And yes, I do need to be VAT registered unfortunately.

On £100 a day you dont need to be VAT registered,

Depends how many people you're charging £100/day to I guess, but there's something sounding not quite right from the OP.

I’m guessing the op was using £100 as an example. They may well be charging a much higher day rate.

If the price they offer is £100 per day, then that’s the price, and VAT comes out if it.
Are you in Europe? This happens quite a bit with our European clients unfortunately in my sector.

Thanks for everyone’s replies. The nature of my work means I don’t have set prices, clients offer me an amount per project. So for example they would say “The job is x and the rate is £100 per day.” Then I have to go back and say “Okay, but I will need to charge you £120 a day instead because of VAT.”

As others have said, assuming that your customers aren't VAT registered, the price they are offering you can be assumed to be VAT inclusive, so in your example you would charge them £83.33 + VAT.

Business to business sales always work in prices before vat.

Because if they are a VAT registered business the VAT can be reclaimed, so it isn't a real cost to the business.

VAT registration is nothing to do with being limited. You would have to charge VAT as a sole trader if your turnover is above £85,000 per year.

For business customers just quite your price x plus VAT. For domestic customers quote y including VAT.

Don't be apologetic, you make yourself look unprofessional.

I’ve just lost another potential client due to VAT. So frustrating. It’s a big business so definitely VAT registered itself unless it’s doing something dodgy with its accounting. But apparently they won’t use a contractor that charges VAT.

Are they def vat registered? If so why would it make any difference to them. .They just offset it against there sales. sounds like an excuse

I don't understand why you need to be vat registered?

their not there