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    Question Expenses Claimed Back via Agency When Using Self-Billing

    Hi

    I am using an agency that has a self-billing setup with the end client.

    Last weekend I worked away all weekend with 14 hours traveling in total (rented car). I have 350 or so of expenses, all bought using my business account debit card.

    How should those transactions be recorded in my accounting system, if I will simply get a larger payment from the agency next pay day? Are they considered expenses in terms of tax?

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    Quote Originally Posted by MikhailCompo View Post
    Hi

    I am using an agency that has a self-billing setup with the end client.

    Last weekend I worked away all weekend with 14 hours traveling in total (rented car). I have 350 or so of expenses, all bought using my business account debit card.

    How should those transactions be recorded in my accounting system, if I will simply get a larger payment from the agency next pay day? Are they considered expenses in terms of tax?
    Has the client agreed to pay expenses on top of your contract rate then?

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    If the client has agreed to reimburse you for your expenses then you need to invoice them for those expenses. If you're on self billing the agency probably has a system in place for submitting these.

    The expenses you incurred and paid for on the business card are treated like any other employee expenses. As they have been paid directly by the business there's obviously no need to reimburse yourself and they are treated as tax deductible.

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    Careful with the VAT. Especially if you're in frs. It counts as turnover.

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    To answer previous questions, yes the client will pay the expenses, so I send my client-approved claim form to the agency, who reimburse me directly.

    Quote Originally Posted by Alan @ BroomeAffinity View Post
    Careful with the VAT. Especially if you're in frs. It counts as turnover.

    I am on FRS so how does this affect me and in what way should I be careful?

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    Quote Originally Posted by MikhailCompo View Post
    I am on FRS so how does this affect me and in what way should I be careful?
    You need to account for VAT on any recharged expenses. Your expenses will have VAT added to them when you invoice but if any of your expenses had VAT on them in the first place it's common for agencies to insist you recharge them at the net price rather than gross. As you can't reclaim the VAT on the FRS it means you won't fully recover the expense.

    For example, if you pay 100 + VAT for something as you can't reclaim the VAT it has cost you 120. Ideally you'd like to recharge this 120 to the agency (which would have VAT on top, so 144 total).

    Agencies see this as "charging VAT on VAT". This is not the case but that's how they see it. They want you to recharge them 100 instead, making 120 inc VAT. Once you've accounted for VAT on this under the FRS you won't have fully recovered the cost.

    In practice this shouldn't be that big a deal unless you have a lot of expenses. The surplus income you make from being on the FRS is designed to cover your input VAT so won't be losing out (but you should always keep an eye on your expenses when on the FRS as there is a point at which it is no longer financially viable to be on the scheme).

    Also, that you're able to recharge anything for your expenses puts you in a better position than anyone who has to absorb the cost in their rate.

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    Quote Originally Posted by MikhailCompo View Post
    To answer previous questions, yes the client will pay the expenses, so I send my client-approved claim form to the agency, who reimburse me directly.
    ?
    It's not you who should be reimbursed, it's your company. The expenses should be shown on your self billing invoice with VAT on top.

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    Quote Originally Posted by TheCyclingProgrammer View Post
    You need to account for VAT on any recharged expenses. Your expenses will have VAT added to them when you invoice but if any of your expenses had VAT on them in the first place it's common for agencies to insist you recharge them at the net price rather than gross. As you can't reclaim the VAT on the FRS it means you won't fully recover the expense.

    For example, if you pay 100 + VAT for something as you can't reclaim the VAT it has cost you 120. Ideally you'd like to recharge this 120 to the agency (which would have VAT on top, so 144 total).

    Agencies see this as "charging VAT on VAT". This is not the case but that's how they see it. They want you to recharge them 100 instead, making 120 inc VAT. Once you've accounted for VAT on this under the FRS you won't have fully recovered the cost.

    In practice this shouldn't be that big a deal unless you have a lot of expenses. The surplus income you make from being on the FRS is designed to cover your input VAT so won't be losing out (but you should always keep an eye on your expenses when on the FRS as there is a point at which it is no longer financially viable to be on the scheme).

    Also, that you're able to recharge anything for your expenses puts you in a better position than anyone who has to absorb the cost in their rate.
    This is very common particularly (IME) with the bigger agencies. I fell out BIG TIME with Fircroft over exactly this. I even sent them marked up copies of the HMRC bulletins regarding VAT and expense recharges versus disbursements. I got my accountant to call them too but they still refused to pay the correct VAT. I should have complained to the HMRC VAT office but I prefer to fly under the HMRC radar so I didn't complain about them in the end. This is an issue that someone like IPSE should follow up but they seem more interested in negotiating shady "confidential" kick back deals with accountants these days.

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    I know this is a commonly held view by agencies and some clients, but, apart from those clients who can't reclaim vat, I don't understand the issue as all vat is reclaimable.

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    Quote Originally Posted by fidot View Post
    I know this is a commonly held view by agencies and some clients, but, apart from those clients who can't reclaim vat, I don't understand the issue as all vat is reclaimable.
    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.

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