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Hi, I have a client whose total annual turnover is approaching the vat registration threshold (85k).
HOWEVER 6.5k of this turnover is from MOTs which they charge £40 for (these cost my client £35).
I realise that post vat registration these need to be separated out on invoices for them to be classed as non taxable (shown as a disbursement and service charge) however please can someone advise me whether this applies PRE vat registration?
My client did not split these out on their customer invoices prior to this year (they are on one line i.e £40) as they were not vat registered they did not think they were required to. However on their bookkeeping they are split out so I can clearly see the turnover with and without the cost of the MOTs.
I’m not sure whether to include these in the taxable turnover figure or not as one accountant has advised I should, (on the basis they should if they were vat registered), whereas another accountant has advised I don’t need to (on the basis they are not currently vat registered), as long as they are invoiced correctly with the split going forwards.
This income could be the difference between them having to register for vat or not so any advice on whether it should be included in their taxable turnover would be much appreciated?It’s not down to whether or not your client is VAT registered. It’s to reflect the contractual position – whether the test centre’s customer is your client, or the vehicle owner direct (with your client acting as agent).
- If your client is the test centre’s customer, your client is making an onward supply of the test to the vehicle owner, and the full amount charged is your client’s turnover.
- But if the vehicle owner is the test centre’s customer, your client is only acting as an agent in making the arrangements and handling the payments. So only their fee for doing so (i.e. the amount they keep) counts as their turnover.
The bit about showing the elements separately on invoices is just because there’s no way that the vehicle owner can be a direct customer of the test centre if they don’t even know what the test centre has charged. But showing the elements separately is not necessarily enough on its own – you need to consider the full guidance in section 25.4 of HMRC’s notice 700: https://www.gov.uk/guidance/vat-guide-notice-700#section25
You can’t retrospectively change the contractual position between the parties. So you can’t exclude the test centre’s fees from your client’s taxable turnover prior to them being shown separately – and you can only exclude them after that date if the conditions in the VAT notice above are met to show that your client was acting as an agent.
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