Using a supplier that is nearing the VAT Threshold

[Dave 11]

We run a Film Co and sub contract staff & editors on an ad hoc basis. If an editor has previously worked for us and submits an invoice pre VAT registration, then we just pay, which is fine. What happens when they register for VAT. Would the fee we agreed previously then be subject to VAT? ie the supplier would include the vat amount on their invoice? We would then claim this VAT back?   What if we as the main Company take a wedding booking from a private couple who are obviously not a business and not VAT registered.  We just take the hit on this and pay the VAT on the full amount quoted, minus any purchased items say USB Sticks etc. We obviously try to charge accordingly in the first instance.  What if we engage one of our sub contractors Filmmakers to undertake that wedding for an agreed fee but they then become vat registered. Would we as the main Co, who originally took payment from the client (Wedding Couple) have to now pay the Vat off the suppliers invoice?  I would assume it cancels itself out as we would claim the VAT back?    

[Trevor S]

In this reply, I’m assuming that there is no contractual relationship between the couples and the external editor or filmmaker subcontractors – and that the couples are your customers, and you are the editor/ filmmaker’s customer.  If the contractual arrangements differ to this, it could impact on the answers.

Quote:

If an editor has previously worked for us and submits an invoice pre VAT registration, then we just pay, which is fine. What happens when they register for VAT.

Whether a previously agreed price is deemed to be the VAT inclusive or VAT exclusive value is purely a contractual matter – it is not covered by VAT legislation. Ideally the contract will quote fees as something like “£x, including VAT if applicable” or “£y, excluding VAT”. If the contract makes no mention of VAT, you’ll need to reach agreement with the editor.

Quote:

We would then claim this VAT back?

Depends on whether (a) you are VAT registered and (b) the charges you make to your customers attract VAT. If the answer to both is “yes”, you’ll be able to reclaim the VAT charged by the editor. As usual, you’ll need them to give you a valid VAT invoice.

Quote:

What if we as the main Company take a wedding booking from a private couple who are obviously not a business and not VAT registered.

This is a separate transaction. If you are already VAT registered, you should already be charging VAT to your customers on the full amount they pay you, regardless of whether the editor you use is VAT registered.
But if you’re not VAT registered, you won’t be able to reclaim the VAT that a VAT registered editor charges you. It would become part of your costs. You would then need to decide whether you absorb that going forward or increase your charges to future customers to cover it.

Quote:

What if we engage one of our sub contractors Filmmakers to undertake that wedding for an agreed fee but they then become vat registered.

Much the same issues as if an editor VAT registers. What does your contract with the Filmmaker say – are they entitled to add it to their existing fees or are they required to take it out of their existing fees? If the contract doesn’t clearly specify, you’ll need to reach agreement with the Filmmaker.

Quote:

Would we as the main Co, who originally took payment from the client (Wedding Couple) have to now pay the Vat off the suppliers invoice? I would assume it cancels itself out as we would claim the VAT back?

Again, the same position as with the editor example. You can recover the VAT if you’re VAT registered and you have a proper VAT invoice from the filmmaker – which means that it’s no extra cost to you.

Hope this helps!

[Dave 11]

Thank you. Perfect, as yes we are vat registered and have agreement in place on the payment terms for our editors, so they will issue a proper vat invoice, once registered. Thank you for your prompt response. 

[VAT-adviser]

Just to add that if you require more detailed paid advice, please do not hesitate to contact me here – simply PM on messages.

[Author]

Posts