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Thread: Tax & VAT with Residency

  1. #1

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    Default Tax & VAT with Residency

    Hi all,

    As some of you will know I've just accepted a residency in a hotel, last week we agreed on prices but today I've had a call from the hotel asking if I was VAT registered which I responded to with no but I do pay tax on what I earn.
    Anyway to cut a long story short, they want to reduce the amount they are paying me per gig by £15 because their accounts department say because I'm not VAT registered they will have to pay the VAT on what they charge the customer.

    This doesn't sound quite right to me, if they are paying VAT on what they charge their customer and giving me the net amount, does this mean I do not have to pay tax on it?

    I'm a bit confused by it and am just wondering if they are trying to reduce the amount they are paying me.

    Any help is appreciated.

  2. #2
    Dinosaur Excalibur's Avatar
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    I've just had a run through with some numbers, and I think I see what they mean. Let's say you agreed to be paid £200 by the hotel. They charge the customer £200, your fee. So far so good.
    However, they have to charge VAT , so customer pays £240. If they've agreed £200 already with the customer for the cost of the disco, they lose out to the tune of £40.

    Now then, in the first scenario, let's say your fee was still £200, but INC VAT. Hotel charges customer £200, doesn't lose anything.

    I think that's the scenario here, but I'm not clued up on VAT at all, I'm sure someone who is will be along soon.


    Many many years ago, when I had a residency, the more astute customers worked out that if they came straight to me, they saved the VAT.
    Excalibur. Older than the average DJ.

    www.excaliburmobiledisco.co.uk

  3. #3
    Corabar Entertainment's Avatar
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    Put simply, if you charge £100, the cost to the end customer will be £120 because the hotel have to charge 20% VAT on their invoices. If you were VAT registered and charged £100 + VAT (ie £120) the hotel would be able to claim back that 20%, so would still need to charge the client £100 + VAT = £120.

    It sounds like you were talking at cross purposes and they thought your fee was inclusive (Did you / do you use the word at all - eg 'My fee is £120 inc'?) If they thought it was £120 inc VAT, they were assuming a charge to the client of £100 + VAT, whereas the cost to the client would, in fact, be £144.

    Obviously, I'm just using silly figures here to get the point across and am not suggesting for a minute that those are what you're charging!

    It has nothing whatsoever to do with your tax liabilities: You pay tax on whatever you earn

  4. #4

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    Quote Originally Posted by Excalibur View Post
    I've just had a run through with some numbers, and I think I see what they mean. Let's say you agreed to be paid £200 by the hotel. They charge the customer £200, your fee. So far so good.
    However, they have to charge VAT , so customer pays £240. If they've agreed £200 already with the customer for the cost of the disco, they lose out to the tune of £40.

    Now then, in the first scenario, let's say your fee was still £200, but INC VAT. Hotel charges customer £200, doesn't lose anything.

    I think that's the scenario here, but I'm not clued up on VAT at all, I'm sure someone who is will be along soon.


    Many many years ago, when I had a residency, the more astute customers worked out that if they came straight to me, they saved the VAT.
    Thanks, I kind of understand that bit.... I think.
    They are charging their customer £250 and the fee we agreed was £220, they are now saying they want to pay me £205 as they will make a loss because they have to pay the VAT on £250.

    I might be wrong but if they are changing £250 and paying me £220 shouldn't they only pay the VAT on the £30 profit i.e £6?

  5. #5
    Richie's Avatar
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    VAT is charged on the whole sale price

  6. #6
    Dinosaur Excalibur's Avatar
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    Angela, I'm surprised at you!!! £100? At least I doubled it, to give a semblance of reality.



    Joking apart, I believe Angela's explanation to be the same as mine, only easier to understand. Well put Angela. Right, to the case in point.

    Quote Originally Posted by Djanddisco View Post
    Thanks, I kind of understand that bit.... I think.
    They are charging their customer £250 and the fee we agreed was £220, they are now saying they want to pay me £205 as they will make a loss because they have to pay the VAT on £250.

    I might be wrong but if they are changing £250 and paying me £220 shouldn't they only pay the VAT on the £30 profit i.e £6?
    I've done the sums again,( and I can't explain them easily, but I understand them ) and if they charge the customer £250 inc vat, they get £208, of which they intend to give you £205. If they charge the customer £250 PLUS VAT they're being naughty.

    I think this is simply a matter of misunderstanding. When I ask for quotes in the Day Job, no supplier quotes inc prices, they expect us all to be VAT registered.

    For what it's worth, I think the Hotel are playing fair on this, I reckon as Angela says, they expected your price to be £220 inc vat, ie a fee of £183+vat=£220(ish)
    In the scenario they envisaged, they made £25 markup on you. In the revised one, they make £3. Bet they're thrilled.
    Excalibur. Older than the average DJ.

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  7. #7
    Corabar Entertainment's Avatar
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    Quote Originally Posted by Djanddisco View Post
    Thanks, I kind of understand that bit.... I think.
    They are charging their customer £250 and the fee we agreed was £220, they are now saying they want to pay me £205 as they will make a loss because they have to pay the VAT on £250.

    I might be wrong but if they are changing £250 and paying me £220 shouldn't they only pay the VAT on the £30 profit i.e £6?
    NO - VAT is payable on the total: there is no 'profit' here.

    OK... from those figures, they are clearly charging the client £250 INC VAT.

    If they pay you £220 and charge the client £250 inc VAT, they will be making a loss on each booking of £14, as they will still need to account for the VAT. (£250 inc VAT = £208.33 ex VAT - which is what they are ACTUALLY charging the client)

    EDIT: Peter beat me to it!

  8. #8

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    Thanks everyone, I understand it now..... honest

    Appreciate the help again!

  9. #9
    Dinosaur Excalibur's Avatar
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    Quote Originally Posted by Corabar Entertainment View Post
    EDIT: Peter beat me to it!
    I shall treasure the moment. It doesn't happen often, I can only type slowly.
    Excalibur. Older than the average DJ.

    www.excaliburmobiledisco.co.uk

  10. #10
    yourdj's Avatar
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    I had this problem at the start of last year and did not understand it either. I ended up fixing my price to a lower level but it encompasses every event even midweek, which actually works out in my benefit. They have also greatly increased wedding bookings and the money over December was excellent as they had 4-5 a week at a rate that is not actually bad for a hotel. I do work my socks off with meetings and showing guests round etc. but I enjoy it

    However you don't want to be Vat registered with your private clients ideally as they cant claim it back and it makes you look more expensive.
    Am I right in saying he can set up a separate company that is VAT registered to deal with the hotels and corporate clients or does it have to have a certain turnover legally?
    Your DJ - Mobile DJ The New Forest, Southampton & Hampshire. Toby
    https://yourdj.co.uk/

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