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  1. #11

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    Quote Originally Posted by Alan @ BroomeAffinity View Post
    I think it's not to to do with whether it's reclaimable or not. I believe they're reclaiming the VAT regardless. The issue is what represents the net cost after VAT. E.g., if you've didn't 100 you should charge 100 plus VAT = 120. Many agencies contend that you should charge 100 inc VAT. So, if you've a lot of expenses it could mount up.
    That's right, many agencies do this. But it is clearly not correct according to the published HMRC guidelines on the VAT treatment of recharges and disbursements. Why does this situation persist? I can't be the only one to have had a big falling out with an agency over this?

  2. #12

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    Quote Originally Posted by Fred Bloggs View Post
    That's right, many agencies do this. But it is clearly not correct according to the published HMRC guidelines on the VAT treatment of recharges and disbursements. Why does this situation persist? I can't be the only one to have had a big falling out with an agency over this?
    You're not. But you need to work out how to persuade agencies to tear up their cosy internal accounting systems and stop paying our invoices through their payroll which are obviously geared for permanent employees who can't reclaim VAT. The VAT itself is not the issue, it's their costs of running two separate payment systems that they see as being totally unnecessary since we aren't after all, independent businesses and they don't deal with MyCo, they believe they are dealing with Me, poor deluded 27bn a year business that they are...

    But if we could fix that then 90% of the issues we have with contracts, IR35, VAT and interpretations of professional working days would go away overnight. And that's not going to happen.

    And it's pointless railing at IPSE or anyone for not doing this: have you asked them to?
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  3. #13

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    Quote Originally Posted by Fred Bloggs View Post
    That's right, many agencies do this. But it is clearly not correct according to the published HMRC guidelines on the VAT treatment of recharges and disbursements. Why does this situation persist? I can't be the only one to have had a big falling out with an agency over this?
    It's entirely consistent with HMRC rules. There are no rules about what you should recharge for your expenses. It's a contractual matter. If client insists expenses are recharged at net cost then there is nothing wrong with this. The only rule is that you just charge VAT on top.

    If you were on the standard VAT scheme and reclaim VAT then a 100 + VAT expense would in reality only cost you 100 so it's entirely reasonable that you would also recharge 100 + VAT. The whole thing is VAT neutral and you recover your costs in full.

    The fact you're on the FRS and can't recover the VAT is not the client or agencies problem. You should in fact be recovering the VAT as a result of making surplus income from the way the FRS works. If your input VAT on expenses is outweighing the FRS surplus income then you should come off the FRS.
    Last edited by TheCyclingProgrammer; 13th November 2016 at 12:21.

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    Quote Originally Posted by Alan @ BroomeAffinity View Post
    I think it's not to to do with whether it's reclaimable or not. I believe they're reclaiming the VAT regardless. The issue is what represents the net cost after VAT. E.g., if you've didn't 100 you should charge 100 plus VAT = 120. Many agencies contend that you should charge 100 inc VAT. So, if you've a lot of expenses it could mount up.
    Thanks for your reply, Alan. That may be the case for end clients but surely agencies will be charging on any expenses to the end client, so they won't be out of pocket.

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    Quote Originally Posted by fidot View Post
    Thanks for your reply, Alan. That may be the case for end clients but surely agencies will be charging on any expenses to the end client, so they won't be out of pocket.
    If you're recharging gross instead of net cost then it's still more expensive to the end client, regardless of VAT.

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    Quote Originally Posted by TheCyclingProgrammer View Post
    If you're recharging gross instead of net cost then it's still more expensive to the end client, regardless of VAT.
    But I don't care. I'm recharging my costs incurred servicing their requirements.
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    Quote Originally Posted by malvolio View Post
    But I don't care. I'm recharging my costs incurred servicing their requirements.
    And the clients don't care that you can't directly recover the input VAT.

    Regardless, it's not necessarily true to say that if you are on the FRS that the input VAT on any expenses represents the true cost because if those expenses are directly related to billable work then that cost may be partially or fully covered by the margin you make from being on the scheme.

    For example, if you incur costs of 100 + VAT in the course of doing two days billable work at a rate of 500/day then the simplistic view is that you've incurred 120 in costs and that is what should be added to your invoice before VAT.

    However let's assume you recharge your expense at net cost on the insistence of the agency. Your total invoice is now 1100 + VAT which is 1320. Assuming a FRS rate of 14.5% you would pay HMRC 191.40 in VAT which leaves you with 1128.60. Less your 120 costs and you've made a gross profit on those two days work of 1008.60.

    So in this scenario the 20 VAT on your expenses does not represent a net cost at all, so why should you be entitled to charge extra for it? The fact is for the typical contractor on the FRS not only do they effectively recover their input VAT costs from the FRS surplus (which is the whole point of it), they usually profit from it. Yet you want to have your cake and eat it and bill the client for the VAT too. Bit of a cheek really.

    Obviously if your expenses are high and you're not making enough surplus from the FRS to cover the VAT on your costs then you're going to make a loss - this is the case regardless of what you charge your clients. But it's not necessarily an argument for charging the client more, it's an argument for coming off the FRS entirely.

    If you would normally profit from the FRS but the costs in servicing one particular client are high then that may be an incentive to negotiate on what you charge for your costs (or your daily rate should perhaps be higher) but the idea that as a rule somebody on the FRS should recharge expenses at gross cost is rubbish.
    Last edited by TheCyclingProgrammer; 13th November 2016 at 14:33.

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    Quote Originally Posted by TheCyclingProgrammer View Post
    And the clients don't care that you can't directly recover the input VAT.

    Regardless, it's not necessarily true to say that if you are on the FRS that the input VAT on any expenses represents the true cost because if those expenses are directly related to billable work then that cost may be partially or fully covered by the margin you make from being on the scheme.

    For example, if you incur costs of 100 + VAT in the course of doing two days billable work at a rate of 500/day then the simplistic view is that you've incurred 120 in costs and that is what should be added to your invoice before VAT.

    However let's assume you recharge your expense at net cost on the insistence of the agency. Your total invoice is now 1100 + VAT which is 1320. Assuming a FRS rate of 14.5% you would pay HMRC 191.40 in VAT which leaves you with 1128.60. Less your 120 costs and you've made a gross profit on those two days work of 1008.60.

    So in this scenario the 20 VAT on your expenses does not represent a net cost at all, so why should you be entitled to charge extra for it? The fact is for the typical contractor on the FRS not only do they effectively recover their input VAT costs from the FRS surplus (which is the whole point of it), they usually profit from it. Yet you want to have your cake and eat it and bill the client for the VAT too. Bit of a cheek really.

    Obviously if your expenses are high and you're not making enough surplus from the FRS to cover the VAT on your costs then you're going to make a loss - this is the case regardless of what you charge your clients. But it's not necessarily an argument for charging the client more, it's an argument for coming off the FRS entirely.

    If you would normally profit from the FRS but the costs in servicing one particular client are high then that may be an incentive to negotiate on what you charge for your costs (or your daily rate should perhaps be higher) but the idea that as a rule somebody on the FRS should recharge expenses at gross cost is rubbish.
    Ok, except I'm not on FRS. And your FRS income is liable for CT of course.
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  9. #19

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    Quote Originally Posted by malvolio View Post
    Ok, except I'm not on FRS. And your FRS income is liable for CT of course.
    Fine, but the point being discussed is what to recharge when on the FRS.

    If you're not on the FRS then the whole thing is much simpler. If you incur a cost of 100 + VAT then you recharge the same to the client. After netting off the VAT your cost is fully recovered. You and the client both recover the VAT on your VAT return and everyone is happy.

    Yes, your FRS surplus counts as turnover, but the input VAT element of your expense is also tax deductible as it can't be recovered on your tax return. So it would be more accurate to say that your FRS *profit* is liable to CT which can of course be calculated by deducting the amount of input VAT you've paid from your FRS surplus income.

    And as I pointed out before, if at the end of the year you're making a profit from the FRS, then you're not actually losing out by recharging the net cost of any expenses.
    Last edited by TheCyclingProgrammer; 13th November 2016 at 15:05.

  10. #20

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    Quote Originally Posted by TheCyclingProgrammer View Post
    It's entirely consistent with HMRC rules. There are no rules about what you should recharge for your expenses. It's a contractual matter.
    I'm not that bothered either way what you believe, but in this case you are wrong. And no, it is definitely not a contractual matter.

    For those who want to see the actual correct VAT treatment of recharges and disbursements, including what is a recharge and what is a disbursement - It is all set out in a HMRC pdf document giving clear examples of how it works. In this case, the HMRC guidance is actually clear. Unfortunately, I seem to have mislaid my copy. Google should be a help.

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