Applicable Vat Rates

[gefpm]

I am unsure as to what rate of vat to charge in a situation that we are in.

Synopses:
we are currently doing a job that requires us to subcontract out groundwork's as part of the completed job.
we will get a invoice from our subcontractor for works with VAT @ 13.5%
We will then supply and also install the goods onto the groundwork's that the subcontractor prepared.

so my question is as the principal contractor at what Vat rate do we furnish our invoice to our client or should it be split?

thanks,

 

[capnhand]

Hi

If this is a contract which comes under RCT (you need to check as there is not enough information given as to whether it does) then the subcontractor does not charge you any VAT. He puts a note on his invoice to state 'VAT ON THIS SUPPLY TO BE ACCOUNTED FOR BY THE PRINCIPAL CONTRACTOR’ and the supply is zero rated.

You as principle contractor are required to account for the subcontractor's VAT via the reverse charge mechanisim. You add the VAT that would have been charged by the subcontractor to the sales on your VAT return and take a corresponding imput credit for the VAT suffered by adding it to the purchases on your VAT return. ie no net effect on the amount of VAT that you would pay to the revenue

You also need to charge VAT to the customer taking into account the 2/3rd rule re the split of goods and services supplied. If the total value of the goods supplied is more then 2/3rds of the total costs then the VAT is 23% on the entirity. If the cost of the goods is less then 2/3rds of the total cost then the VAT is split between the cost of the goods at 23% and the cost of the services at 13.5%.

Hope this helps

capnhand

 

[smeharg]

You need to ascertain whether the work falls within the definition of contruction operations for RCT purposes. If it does then the reverse charge mechanism outlined by capnhand would apply, if not the subcontractor would charge VAT at 13.5%.

Whatever the VAT rate charged by the subcontractor it has no effect on the rate charged by you to your customer.

As your contract is to supply and install goods the 2/3rds rule does not apply (and capnhand's description of how it operates is incorrect).

Without all the details it's impossible to state categorically whether the full amount should be charged at 23% or whether there is scope to charge the labour element at 13.5%