Be careful VAT does not upset your cashflow forecast

If you are just starting out in business (and not planning on registering for VAT) when you ask for quotes for rental prices of shops/ clinics/ offices you should ask if the price includes VAT. This can upset a few cash-flow forecasts if you are not careful! Here is a question I was asked via email this week by a new client and my reply

I’m currently looking at an opportunity to rent space for a day each week in a very nice holistic clinic. The one day rate is £275 per month.  I’m just going through the agreement and the licence fee is listed as £275 per calendar month. However, there’s a clause which states that all sums payable under the licence, including the licence fee, are exclusive of Value Added Tax, which, if payable, is payable in addition in return for a valid Value Added Tax invoice.  

I’m assuming that by not being VAT registered that I don’t need to pay VAT on this. Is that right?

No. You will still have to pay VAT. It sounds like the person/ business renting the rooms in the clinic will be VAT registered and therefore they have to charge VAT on all services they provide unless its VAT exempt. If you were VAT registered then you can claim back the VAT so the cost would be £275. But since you are not VAT registered then you will have to pay £275 + VAT = £330 (VAT is 20%).

Be careful with that as a lot of businesses quote the price excluding VAT. Whenever you get a quote always ask does that include VAT? They will either say “No its ex VAT” (which means add it on) or “No, I’m not VAT registered” which means that they will be the same as you and not registered and the cost quoted is the cost you pay.

© Helen Monaghan

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