Agreements with a subcontractor that could be dealing with my customer. - Page 1
Forum section: electronics / general

author: Simon
author_rank: Unknown
timestamp: December 17, 2015, 06:49:27 pm
content: In order to simplify my life as much as possible and utilised for service my subcontractor can offer it would be advantageous to me to have my assembly subcontractor build my parts and supply them straight to my customers. Of course this leads to the obvious question of how do I stop them bypassing me if they were ever to take such a notion into their heads.Are there standard agreements that can be found floating around the net that we can both sign?It makes a lot of sense for me because it avoids me being VAT registered because instead of handling the full value of the goods being made for me I would only be handling the commission from my subcontractor. So it will take me much longer to reach a point where I need to be VAT registered.

author: Gyro
author_rank: Super Contributor
timestamp: December 17, 2015, 07:25:13 pm
content: If at all possible I'd stick with the traditional supplier - customer relationship, even if it is less convenient to you. If you have your subcontractor supplying your customers directly then you loose visibility of the product and therefore an element of outgoing quality control. You also have less visibility when it comes to any issues reported by your customers.I'd put this higher as a concern than the danger of being 'cut out of the loop'.Edit: Having said that, I think this is exactly the arrangement that this guy (http://livinginthepast-audioweb.co.uk/index.php?p=messages&sw=none) has with Danbury Transformers, see the 'About this site' tab. Maybe he could give you some hints.

author: Simon
author_rank: Unknown
timestamp: December 17, 2015, 07:27:49 pm
content: the devices are quite simple and would probably be potted so there is a limit to what I can see of their manufacturing quality. It would make more sense to have an unpotted sample set to me from every "x" amount in a batch (and use them as prototypes for new customers or to fill small orders myself).

author: Macbeth
author_rank: Super Contributor
timestamp: December 17, 2015, 07:34:26 pm
content: Didn't the Italian manufacturer of OSHW Arduino (TM) steal their business from under them?

author: Gyro
author_rank: Super Contributor
timestamp: December 17, 2015, 07:35:14 pm
content: Simon, I'd just edited my reply above with a link to a transformer supplier when I saw your post. If you're talking about simple potted assemblies. then there might be even more commonality. He is also not VAT registered.

author: Simon
author_rank: Unknown
timestamp: December 17, 2015, 07:38:34 pm
content: Quote from: Macbeth on December 17, 2015, 07:34:26 pmno idea. I know this subcontractor already do this so it's nothing new infact they suggested it, they will take your idea and if neccessary develop it and deliver to customers.

author: tautech
author_rank: Super Contributor
timestamp: December 17, 2015, 08:02:01 pm
content: Retain control.Become VAT registered.Sure there are compliance costs, but the benefits for even a small business should overshadow them ie. claimingall the input VAT costsback for your company.Here in NZ for a home business that is 25% portion of the total day to day running costs.Consult your accountant for your entitlements.

author: Simon
author_rank: Unknown
timestamp: December 17, 2015, 08:04:42 pm
content: no, VAT requires so much more in accounting (more costs) I currently don't need an accountant. At the moment, yes I buy with VAT but I sell VAT exempt so I'm charging people less or making more money. of course that is irrelevant when selling to other businesses.

author: tautech
author_rank: Super Contributor
timestamp: December 17, 2015, 08:15:41 pm
content: Quote from: Simon on December 17, 2015, 08:04:42 pmOK, we don't have that luxury, ALL/ANY items or services contain a GST (VAT) portion. To be able to claim it back one must be registered.The only sales that are exempt are those to Mr C Ash.

author: Macbeth
author_rank: Super Contributor
timestamp: December 17, 2015, 08:16:02 pm
content: It can be worth the VAT reg if your expected profits from this business are not exactly stellar, because you get to buy all your kit for the ex-VAT price. I've only had one VAT inspection in 15 years and believe me the inspector will take one look at a brand new bit of very expensive Keysight gear and totally conclude it is "wholly, exclusively, and necessarily" business use. Actually they won't even do that as they just look at the retained invoices. If it doesn't state something like Playstation, Champagne & Caviar, 57" widescreen home entertainment system then you should be ok.It's also kind of gratifying to get a VAT refund occasionallyIf your clients are all businesses or outside the EU then it's very worth the registration.Really it shouldn't be much more onerous to administer than normal book-keeping for a self-employed small business. If anything it will encourage you to keep your books in order!

author: Simon
author_rank: Unknown
timestamp: December 17, 2015, 08:17:57 pm
content: Quote from: Macbeth on December 17, 2015, 08:16:02 pmYou say as I scramble to get my accounts sorted for my tax return.

author: Macbeth
author_rank: Super Contributor
timestamp: December 17, 2015, 08:19:56 pm
content: Quote from: tautech on December 17, 2015, 08:15:41 pmIt's the same here in the UK. There really isn't any bureaucratic overhead that requires accountants, etc, to administer VAT. Even a LTD company isn't too hard to self administer without an accountant. Also VAT registration is mandatory when turnover rises above something like £30k IIRC.

author: tautech
author_rank: Super Contributor
timestamp: December 17, 2015, 08:21:43 pm
content: Quote from: Simon on December 17, 2015, 08:17:57 pmThe possibility of a VAT refund will give you motivation.

author: Simon
author_rank: Unknown
timestamp: December 17, 2015, 08:22:43 pm
content: I think it's £65K now, it's not been worth it for dealing with joe public on ebay as it means I'm being charged 25% of my retail price that makes me more expensive as I pass it on. But busioness to business dealings are totally different and I'm hoping to move that way.

author: Macbeth
author_rank: Super Contributor
timestamp: December 17, 2015, 08:31:49 pm
content: Quote from: Simon on December 17, 2015, 08:22:43 pmThis is why its probably worth setting up a Ltd company - buy all your expensive gear through that, and leave all the ebay non VAT sales as your self employed income. But maybe you should speak to an accountant on that oneOh and before the state-employed job for life and pension whingers come out and decry such practices as tax dodging/evasion, I always like Lord Clydes judgement in an ancient Inland Revenue case:"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

author: tautech
author_rank: Super Contributor
timestamp: December 17, 2015, 08:36:09 pm
content: Quote from: Macbeth on December 17, 2015, 08:19:56 pmWe're a bit higher here at $60K, but yes, it's not hard to keep on top of doing it yourself.The choice to register if you're not above the threshold should be governed by your grand plan, say you intend to sell/retire soon and have significant asset value to cash up, if registered you'd have to pay back the GST (VAT) portion of the sale proceeds, a significant disincentive to register. But that only applies to your company and its assets, not your private assets, so it's a good idea to not have all your affairs under 1 umbrella.

author: 8086
author_rank: Super Contributor
timestamp: December 17, 2015, 08:45:05 pm
content: Quote from: Macbeth on December 17, 2015, 08:19:56 pm£82,000, so quite a bit more than £30,000.Lucky for me I won't be near this for years...or is that unlucky? hmm...

author: Macbeth
author_rank: Super Contributor
timestamp: December 17, 2015, 08:45:33 pm
content: I've recently stumbled upon a free open source accountancy app,GnuCashwhich appears to handle VAT and all the other interesting stuff like Profit & Loss, Balance Sheets, etc...Looks like it could put QuickBooks to shame (which isn't hard!)

author: T3sl4co1l
author_rank: Super Contributor
timestamp: December 17, 2015, 08:54:06 pm
content: This sounds like a situation that should be set up either:1. You buy exclusively through me. I add margin/labor, but you get qualified, tested materials.2. I buy and test the first prototypes, and send them to you for verification. You get the fab data and testing documentation. This/these are the places I worked with, they're good [if applicable]. Whether you get a quality product, going forward, is up to you (I can help you with that, at standard rate of course).3. Contract terminates with hand-over of fab data. You get it made wherever you like; quality is up to you.It sounds like #1 is out because of tax, so I guess you'd want to pick 2 or 3. And it sounds like you want to be more responsible than 3, so it should be 2.If you want your business to include fabrication and testing, then it sounds like you should pursue #1, and get the tax thing set up.Tim