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    Default 45p per mile, VAT on VAT

    As a contractor, I understand I must invoice my client for mileage at 45p per mile plus 20% VAT. This is normal practice.
    What puzzles me and which I can not find any answer or discussion on is that there is a rule which states that VAT should not be charged on VAT. Yet, the 45p per mile includes something like 17.5p of fuel inclusive of VAT, and normally an employer can recover the VAT element of this, approx 2.5p per mile. So, when I add 20% VAT to my 45p per mile, I am adding VAT on VAT for the 18p fuel element.
    Am I overcharging my client ? Should I actually be calculating VAT on 45p minus 2.5p ?

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    Quote Originally Posted by LindsayRuddock View Post
    As a contractor, I understand I must invoice my client for mileage at 45p per mile plus 20% VAT. This is normal practice.
    What puzzles me and which I can not find any answer or discussion on is that there is a rule which states that VAT should not be charged on VAT. Yet, the 45p per mile includes something like 17.5p of fuel inclusive of VAT, and normally an employer can recover the VAT element of this, approx 2.5p per mile. So, when I add 20% VAT to my 45p per mile, I am adding VAT on VAT for the 18p fuel element.
    Am I overcharging my client ? Should I actually be calculating VAT on 45p minus 2.5p ?
    I've never re-billed expenses, but I don't think you should be charging 45p per mile + VAT, just the 45p per mile.

    Also, £0.45 per mile is the maximum you can claim as a business expense without incurring benefit in kind tax. What you agree with your client does not have to be this amount, it could be considerably less.

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    Quote Originally Posted by LindsayRuddock View Post
    As a contractor, I understand I must invoice my client for mileage at 45p per mile plus 20% VAT. This is normal practice.
    I'm not sure about all this. You do mean for mileage carried out at the clients request i.e. to go to another site... NOT the mileage you claim from your LTD for getting to the office and the like? It's not normal practice as some clients insist on portals to enter it in to but you should be invoicing it.. and not all clients will allow 45 per mile either. If you are claiming any expenses back from your client you should clarify what you can claim and just put that in.

    Just wanted to check that line as it doesn't sound right.....
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    If you are charging your client for agreed expenses then you must add VAT, assuming you are VAT registered. No need to strip out any assumed VAT within the mileage rate.

    If you were recharging for say a hotel bill then you can strip out the VAT and then charge VAT on top so that you aren't gaining. That is the treatment your client would expect. However if you are on the flat rate VAT scheme you would lose out as you would not be able to reclaim the VAT on the hotel. In this case you would need to monitor your expenses to see if remaining on Flat Rate VAT is worth it.

    Of course if you have a decent accountant they could/should be advising you of this 🙄
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    Quote Originally Posted by Waldorf View Post
    If you are charging your client for agreed expenses then you must add VAT, assuming you are VAT registered. No need to strip out any assumed VAT within the mileage rate.

    If you were recharging for say a hotel bill then you can strip out the VAT and then charge VAT on top so that you aren't gaining. That is the treatment your client would expect. However if you are on the flat rate VAT scheme you would lose out as you would not be able to reclaim the VAT on the hotel. In this case you would need to monitor your expenses to see if remaining on Flat Rate VAT is worth it.

    Of course if you have a decent accountant they could/should be advising you of this 🙄
    Thank you everyone, especially Waldorf. I didn't think I would get any replies, certainly not so fast ! Waldorf's advice has a ring of truth to it - all regular input VAT is stripped out, then output VAT added to everything VATable or not but there is no need to strip out assumed VAT. So, a little bit different to the treatment when entering the expense as one's own Ltd Co expense where the assumed VAT on the fuel element can be reclaimed, as long as one has receipts to the value of the fuel element of the 45p.

    I'm not FRS. The client for this contract has agreed a daily rate plus all materials, hotel and travel at 45p per mile. I was stumped at first but now it seems simple - VAT is added to all expenses net of VAT including the 45p per mile. In theory there is a partial VAT on VAT for the fuel element of the 45p amounting to 0.5p per mile, that was what was bothering me.

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    Quote Originally Posted by northernladuk View Post
    I'm not sure about all this. You do mean for mileage carried out at the clients request i.e. to go to another site... NOT the mileage you claim from your LTD for getting to the office and the like? It's not normal practice as some clients insist on portals to enter it in to but you should be invoicing it.. and not all clients will allow 45 per mile either. If you are claiming any expenses back from your client you should clarify what you can claim and just put that in.

    Just wanted to check that line as it doesn't sound right.....
    Yes, sorry, badly worded on my part, 45p per mile has been agreed. It's the VAT treatment I was asking about.

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    Quote Originally Posted by LindsayRuddock View Post
    Yes, sorry, badly worded on my part, 45p per mile has been agreed. It's the VAT treatment I was asking about.
    Charge of expenditure + any tax to deliver service to client. Hopefully Lisa can confirm this or I have one hell of a retrospective tax bill to pay.-

    If HMRC would allow me to offset the total tax & fuel duty I have spent over my contracting career........

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    Please don't confuse the allowances or expenses (in this case the AMAPs) you can claim from YourCo with what you bill your client. The two are completely unconnected.

    You can claim 45p/mile from YourCo as an expense up to 10k miles without incurring a BIK.

    What you have agreed to bill your client for travel expenses is completely separate. It could be nothing (I don't charge my client for mileage to their site as its already accounted for in my daily rate), it could be 10p/mile, it could be 45p/mile, it could be a flat rate of £xxx per day, it doesn't really matter. All that matters is that you and your client agree on an amount and when you bill them, VAT gets added on top.

    It really is that simple so please don't overthink this. Any materials or expenses you recharge to them (except for disbursements) form part of your overall service charge and are subject to VAT. If you agreed 45p/mile who them then you would still add VAT.

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    Quote Originally Posted by clearedforlanding View Post
    Charge of expenditure + any tax to deliver service to client. Hopefully Lisa can confirm this or I have one hell of a retrospective tax bill to pay.-
    Yes, that is correct - simply add VAT to the total expenses you are charging. There are two methods, either add VAT to the total amount OR strip out the VAT and then add the VAT. Either is accepted by HMRC, the first may not be accepted by the client!

    If HMRC would allow me to offset the total tax & fuel duty I have spent over my contracting career........
    That is what the 45p is supposed to cover.
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    your company can claim whatever was agreed per mile
    You as a person can claim up to 45p from your company

    I used to claim 80% of 45p from the agency in my invoice and add 20% VAT

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