Charging for materials and VAT: this is how you do it correctly

Purchasing materials, installing, and then properly charging your client: in the construction and installation industry, this is daily practice. Yet, this is precisely where things often go wrong with VAT. Not because it needs to be so complicated, but because in common parlance, “passing on” can mean just about anything.

Anyone who wants to organize things efficiently looks at two things: your performance towards the client, and how you process purchases and sales in your records. With a few standing agreements and a consistent recording method, you avoid disputes with the client as well as hassle during a VAT audit.

What exactly does “passing on materials” mean?

Charging costs means passing on expenses you incur (materials, parts, consumables, and sometimes travel or other costs) to the client. You therefore purchase in your name, and you invoice those costs as part of your assignment.

It is helpful to adopt a consistent internal approach to what you consider “material,” so that your work orders and invoices remain logical.

After a brief project meeting, you can often classify these types of items under materials:

• Consumables
• Parts and components
• Rental or deployment of small equipment
• Disposal and dumping costs

Important detail: administratively, recharged materials are generally not “costs you simply pass on,” but revenue (including VAT) on your invoice. Purchases are costs or inventory, while sales are revenue.

VAT: which rate do you apply to materials passed on?

In most situations, you apply the same VAT rate to recharged materials as to your main service. The materials are included in the tax base of the service you provide.

That sounds abstract, but in practice it usually means this:

• If you provide a service subject to 21%, you must also invoice materials at 21%;
• If your work falls under the 9% rate (only for specific work on homes), you must also invoice materials at 9% within that assignment.

This is exactly where things go wrong: someone sees a different rate on the purchase order and blindly copies it. When passing on costs to the customer, you do not look at the rate on the receipt, but at the rate corresponding to your service on that invoice.

When is 9% VAT possible in the construction industry?

The 9% rate may apply to certain work on homes older than 2 years (such as painting, plastering, or insulation, subject to conditions). If your project falls under this, the materials you incorporate into that project usually fall under that rate as well.

Two practical points to consider:

A job can also be mixed. In that case, you must pay attention to whether you are truly invoicing for a single service or actually two types of work. Preferably, make this clear in the quotation.

And: new construction, non-residential buildings, many commercial projects, and the sale of individual materials generally fall under the 21% rate. In doubt? Consult your accountant first or check the Tax and Customs Administration's explanation regarding the 9% rate for work on residential properties.

Recharged costs or ongoing items?

In the construction industry, “passing on” is sometimes also used for amounts paid on behalf of the client. From a tax perspective, that is a different category: the standing item.

The difference is simple to explain:

• Recharged costsYou provide a service (or work) and pass on costs as part of your invoice. That is turnover subject to VAT.
• Continuing items: you advance a sum on behalf of the client, in the client's name, and you “pass on the amount”. That falls outside the scope of VAT, provided you meet the conditions.

Pass-through items in the construction industry appear correct less often than one might think. Many purchase invoices are in the name of the contractor or installer. In that case, it is usually not a pass-through item, but simply your purchase, and therefore also your chargeback including VAT.

From purchase order to invoice: a workable step-by-step plan

Accurate VAT processing depends less on “clever tricks” and more on established routines. It helps to maintain the same sequence per project: register purchases, process on the work order, and then invoice.

The core principle is to keep the VAT on purchases and the VAT on sales separate. You book the input VAT as input tax (if you are subject to VAT and have the right to deduct) and you calculate VAT on the sales invoice on the total of labor and materials.

In many situations, this serves as a practical basis:

1. Record purchases: keep the purchase invoice or receipt, link it to the project, and record amounts excluding VAT (and the VAT separately).
2. Book materials for the job: record quantities, description, date, and if necessary a photo or note to substantiate additional work.
3. Prepare invoice: list material lines (usually) excluding VAT on the invoice and calculate VAT according to the rate applicable to the job.
4. Evidence in orderSend copies along if desired; keep the originals in your own records.

If you work with accounting software, you can use separate general ledger accounts for this, such as “Material Costs”, “Revenue from Materials”, and the VAT accounts. This makes retrospective auditing easier.

Common mistakes when passing on material costs (and how to avoid them)

Most VAT errors do not lie in “a wrong tick,” but in the starting point. Is it a service involving materials, or are you passing on an amount on behalf of the customer?

A few mistakes keep recurring in construction practice:

• Double VAT fallacy: you invoice an amount including VAT and you also deduct that same VAT on purchases as input tax.
• Copying the wrong rate: you use the VAT rate from the receipt instead of the rate for the job.
• Leave materials off the invoice: items have indeed been used, but not registered, causing the margin and VAT return to be skewed.
• Insufficient substantiation: no receipts, no link to project, no explanation for additional work, leading to disputes with the client or during inspection.

A simple internal check is: does the material registration match what was actually processed, and does the revenue from materials align with your purchasing plus margin (if you charge one)?

KOR: what changes if you do not charge VAT?

The Small Business Scheme (KOR) turns everything upside down regarding VAT: you do not charge VAT and you do not deduct VAT on purchases. This therefore also applies to materials passed on.

That sometimes makes invoicing “simpler”, but you must remain consistent. You then invoice amounts excluding VAT and state on the invoice that you are applying the Small Business Scheme (KOR).

The table below lists the most common situations side by side.

For many self-employed professionals and small construction companies, the most important question is: are you covered by the Small Business Scheme (KOR) or not? The VAT rate on the purchase invoice is less decisive than you might think; your tax regime determines the basis.

Evidence and specification: what does your client expect, what does the Tax and Customs Administration want to see?

Customers usually want one thing: transparency. What are the costs based on, and is it reasonable?

The Tax and Customs Administration wants something different: that you can demonstrate that the invoice matches your records. Think of a purchase order, the link to the project, and a logical invoice line.

In practice, this helps:

A clear description per material line (brand/type or “miscellaneous fastening materials”), quantities, and a logical unit (piece, meter, set).

And: preferably send copies of receipts along if the customer requests them. The originals should remain in your records.

In this way, digital registration helps to correctly charge materials.

If you only “scrape material together from the van” at the end of the month, something almost always goes wrong: forgotten lines, incorrect quantities, unclear origin. That is not only a loss of revenue, but it also makes the VAT side messy.

Digital work orders solve that by bringing registration forward: on the job, at the moment it happens. Werkbriefje.app is an example of such a solution for construction and installation companies. You register hours, material, rite and project information in an app, with a desktop environment for overview and invoicing preparation. Also photos and notes for additional work fit into that working method.

That yields primarily practical gains:

• You can see which materials were used (and by whom) for each project.
• You miss fewer small items that add up together.
• You can create an invoice faster with a clear specification because the lines are already pre-set.

VAT naturally remains your responsibility and that of your bookkeeper or accounting software, but complete and timely registration makes it easier to apply the correct rate and invoice the correct amounts.

A small calculation example (as you want to see it on the invoice)

Suppose you are doing painting work on a home older than 2 years and the job falls under the 9% VAT rate. You purchase paint and masking material for €200 excluding VAT. Your hours are €800.

On the invoice, you would then put, for example:

• Labor: €800
• Materials: €200
  
  Subtotal: €1.000
  
  VAT 9%: €90
  
  Total: €1.090

You reclaim the input VAT on the paint (if you are VAT-liable) as input tax. On the sale, you remit VAT on your invoice. Everything aligns.

If you work under the Small Business Scheme (KOR), you list the same items without VAT and state that you apply the KOR. Your input VAT then remains part of your costs.

Quotation agreements prevent hassle afterwards

Many discussions regarding recharged materials are actually not a VAT issue, but a communication problem. Therefore, specify in your quotation or order confirmation how you handle materials: at cost price, with a markup, or based on a fixed item.

A customer accepts material items more readily if the structure is clear beforehand and your subsequent invoice follows the same structure as the quotation.

And if you have extra work along the way, one simple habit helps: make a note of it immediately, preferably with a photo and a brief explanation. That usually makes the conversation upon delivery shorter and more businesslike.