VAT on trade work: how to avoid mistakes in your quotes

The VAT rate is not hard to remember: 25 per cent. The hard part is handling it consistently all the way through a quote - in the hourly rate, the materials, the travel charge and the total. A quote that mixes prices including and excluding VAT ends either with an unhappy customer or with you paying the difference yourself. This guide sticks to the widely known main rules as they work in practice for quoting.

In practice the main rule is simple. If you quote a private customer, the price must be stated including VAT. A private customer cannot reclaim VAT, so the price with VAT is the only price that matters to them. If you quote a business customer, stating prices excluding VAT is normal and accepted, because the business can typically reclaim the VAT and works in net figures.

The problem arises when the same quote template is reused for both customer types without adjustment. A business-style quote sent to a private customer with ex-VAT prices feels to the customer like a 25 per cent price increase the day the invoice lands.

Regardless of customer type, every quote should state explicitly whether the amounts include or exclude VAT - both on the individual lines and on the total. The most robust layout shows three figures at the end: the subtotal excluding VAT, the VAT amount as its own line, and the total including VAT. That leaves nothing to argue about, for private or business customers alike, and you can use the same layout for both.

Here is the calculation for a smaller job, laid out the way it should appear in the quote:

• Materials: DKK 18,400 excluding VAT
• Labour: DKK 24,000 excluding VAT
• Travel: DKK 600 excluding VAT
• Subtotal excluding VAT: DKK 43,000
• VAT at 25 per cent: DKK 10,750
• Total including VAT: DKK 53,750

VAT is calculated on the whole subtotal in one go - including the travel charge. Everything invoiced as part of the job must carry VAT, and it must all be presented the same way.

• Mixed amounts: labour stated including VAT and materials excluding VAT in the same quote. The customer cannot work out the total, and you cannot defend it afterwards.
• Mental arithmetic on materials: you remember the cost price from the wholesaler (excluding VAT), add your margin in your head and forget the VAT when the figure goes into the quote.
• Travel and delivery shown excluding VAT but charged including VAT: a classic, where the add-on lines do not follow the same principle as the rest of the quote, so the invoice ends up higher than the quote.
• Incorrect reverse calculation: subtracting 25 per cent from a price including VAT instead of dividing by 1.25 - which gives a figure that is too low.

To find the price excluding VAT from a price including VAT, divide by 1.25. Example: DKK 10,000 including VAT divided by 1.25 gives DKK 8,000 excluding VAT, and the VAT is DKK 2,000. If you instead subtract 25 per cent from the DKK 10,000, you get DKK 7,500 - which is wrong, because VAT is calculated on the amount excluding VAT, not on the amount including VAT.

There are situations where the ordinary rules do not apply - for example construction work for customers abroad, or jobs subject to reverse charge, where the buyer accounts for the VAT. Those are not things to guess at in a quote. If you are facing a special case, run it past your bookkeeper or accountant before you send the quote. It takes five minutes and is far cheaper than correcting an invoice afterwards.

The safest habit is to let your system keep the VAT discipline for you. In Calco you describe the job, and the quote calculates subtotal, VAT and total consistently across every line - so you do not discover a VAT error after the customer has said yes.