Hello, I'm Keith and happy to help you with your question.
Not only can you, but you must! Sub contractor bills you GBP 100. You pay him; book keeping entry is debit Cost of Sales credit Cash/bank. You bill customer; debit Debtors 120 credit Sales 100 credit Output VAT 20. In this simplistic case the profit and loss account would read sales 100, cost of sales 100, thus net profit nil. Every quarter you would pay HMRC and reduce the VAT account to zero. That in very basic terms is how VAT works. You charge VAT on the total of every invoice raised or cash received. In this case there is no Input tax only Output tax.
I do hope I have helped. VAT can be a confusing tax to operate. I know, I can remember its introduction in the 70s. If you are still worried please come back to me and I will approach from another tack.
Really confused as i thought this was class as something else as its a service our customer needs we pay for it first and then put it on our invoice to the customer but didnt think we put vat on it when we didnt have vat on it in the first place. a rechargable service
No, it's actually very simple, but it can be difficult to get one's head around. Assuming that you only make standard rated supplies then you would add VAT to every invoice raised. If it was a cash sale then if you received 120 quid say, 100 would go to sales and 20 the Output VAT.
Everything that you buy for use in the business, or nearly everything (this sub contractor is a case in point), will have VAT added. This VAT you post to Input VAT then every quarter the difference between the two ledger entries is paid to or received from HMRC. Of course some businesses make zero rated supplies, eg omnibus companies. In such cases their Input VAT far exceeds the odd standard rated output VAT and they are always in a reclaim situation. Indeed, because of this they actually make VAT returns every month instead of quarterly.
Have I helped, please, or are you still confused? It may be easier if you don't try to link up what you receive and what you pay until the position falls out automatically when you settle VAT quarterly with HMRC.
I may not be making myself clear our sub contactor is not vat register so no vat on his invoice we then pass this cost onto the client and this is my deliema is should we be vat the cost on our invoice