This article will look at VAT and how it applies to plumbing businesses and their customers, by answering the following questions:

  • What is VAT?
  • Should plumbers be VAT registered?
  • Do plumbers charge VAT?
  • How do plumbers process a VAT return?

What is VAT?

Value Added Tax is a charge added to the price of many goods and services for consumers. The UK standard rate tax is set at 20%, but there are certain items that do not have VAT added and are referred to as ‘zero rate’ goods, such as food, children’s clothing, books, magazines or charity shop items. Domestic gas and electricity bills, energy-saving devices and children’s safety car seats are charged at the reduced VAT rate of 5%. This is because they are deemed ‘living’ expenses.

Businesses do not have to register for VAT until they have an annual turnover of £85,000 or more.

Should plumbers be VAT registered?

Only if a plumber is making over £85,000 a year are they legally required to register for VAT. Because of this, smaller businesses or one-person plumbing services are not as likely to have the extra 20% charge on their products or services.

If you are a plumber and turn over less than £85,000 yearly then you do not have to be registered. However, this threshold of £85,000 changes slightly every year and usually goes up on the 1st of April, so keep an eye on it.

What happens once plumbers are registered?

Once a plumber is registered for VAT, they are required to add an extra 20% to their customer invoices to accommodate the added tax.

VAT registered plumbers then have to total up all the VAT from their customer sales, which is known as ‘output tax’. Then they will have to total up any VAT paid on their own purchases or business expenses needed to run your business. For example, the VAT they’ve paid on their supplier costs. This total is called ‘input tax’.

VAT returns are usually every three months (quarterly) and so plumbing businesses that pass the threshold will have to calculate how much VAT they will pay back to HMRC. To do so, subtract your input tax paid from your total output tax charged to customers, using this simple formula:

Output tax – input tax = VAT payable

There are other VAT methods available to businesses, such as the Flat Rate scheme. This scheme allows a business to pay a set rate of usually between 10-15% on their gross turnover. The rate fluctuates yearly but may benefit some companies and their customers more than the variable VAT rate.

Self-employed plumbers may choose this method if they qualify for VAT, because it means simpler record-keeping as you don’t have to keep detailed invoices or receipts for HMRC. It can also benefit your cash flow since you’ll know how much you are expected to pay, instead of having a large chunk of money leave your business current account when you pay your bill.

Do plumbers charge VAT?

If the plumber’s turnover exceeds £85,000 then they will have added a VAT charge on their customer invoices. But what rate should a VAT-registered plumber charge? 

The rates depend completely on the type of work, and as a plumber, you may undertake a variety of jobs in your day to day activities. That’s why it’s important to understand rates for your VAT return, or you could face an HMRC audit.

Standard rate, reduced rate or zero rate?

Standard rate goods and services are charged at 20% extra on the value.

Zero-rate goods and services, as the name suggests, have no added tax on the price. 

Reduced rate services are charged with an extra 5% added to the sale price. Let’s look at what is covered by each rate.

Standard

Standard rate plumbing services can include:

  • Most domestic repair and maintenance work
  • Work to newly-built structures that don’t fit the zero rate criteria
  • Some work to existing structures, such as extensions

Reduced rate

In some cases, the reduced rate VAT of 5% will apply to your plumbing work, such as for:

  • Any installation of energy-saving materials
  • Residential conversion work, such as converting a house into flats or vice versa
  • Renovating a house or flat that has been empty for at least two years

Zero rate

There will be no added VAT to invoices for zero-rate plumbing services, such as:

  • Work on new build houses, including the supply of certain appliances
  • Services for a disabled person’s home to suit their condition
  • Work on qualifying buildings (usually buildings for charitable purposes or non-business use, such as Scout Halls or a Village Hall) but you can only charge zero rates if you are the main contractor and not employed by another firm to support with the work

You can check the details of any projects with the list on HMRC’s website to be sure you have invoiced the correct rate.

How do plumbers process a VAT return?

When you register for VAT you will receive a certificate that includes your VAT number and information on where to process the return. Most businesses do their return online, every three months (quarterly).

When doing the VAT return online, you’ll need to have your figures prepared, such as total turnover, your input tax and output tax. You will then receive a total VAT bill which you can pay via online banking, telephone, BACS or Direct Debit. You may have already calculated what your total VAT bill is if you have subtracted your input tax from your output tax.

You can also ask your accountant to file your VAT return for you, but you must give them the authorisation to do so via your HMRC account.

Remember as well that if filing for VAT, you’ll need to register for Making Tax Digital before April 2022.

Save time on tax admin with a simple app

If you’re self-employed, you’ll know how much time financial tasks take out of your busy day. The Countingup app can make those tasks much simpler, making your VAT returns quicker and giving you more time to focus on other areas of your business.

Countingup is the business current account and accounting software in one app. It automates time consuming tax admin for thousands of self-employed people across the UK. The app’s digital tax filing service automatically calculates the VAT associated with each of your business transactions. And with automatic expense categorisation, receipt capture tools and cash flow insights, you can confidently keep on top of your business finances everyday. 

Find out more here and sign up free today.

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