VAT on expenses

[SimonMac]

Newbie here, Ltd Company, VAT registered. Recently had to work late hours and took cab home. Cab cost had no VAT added, and I paid it.

I've invoiced this back to my client, but added VAT. Is this correct, found guidance online which implied yes. What have others done?

If the Taxi driver bills less than £85k a year they do not have to register for VAT, so that could be why no VAT appeared on the receipt.

As others have mentioned submit the invoice with amount + VAT (assuming you are VAT registered) if you are on FRS you get a 5.5% kick back from Hector for being an unpaid tax collector.

[Fred Bloggs]

Many agencies really struggle with this. They seem incapable of following the hmrc guidelines on disbursements and recharges. In the past I have even taken the hmrc pdf and edited/highlighted the bits that apply. Result? Complete ignorance. I once had a major falling out with an agency over this as they cost me hundreds of pounds in vat over expenses. All they can see is "vat on top of vat" and refuse to pay. A situation made worse by self invoicing agencies. Be warned.

[TheCyclingProgrammer]

Many agencies really struggle with this. They seem incapable of following the hmrc guidelines on disbursements and recharges. In the past I have even taken the hmrc pdf and edited/highlighted the bits that apply. Result? Complete ignorance. I once had a major falling out with an agency over this as they cost me hundreds of pounds in vat over expenses. All they can see is "vat on top of vat" and refuse to pay. A situation made worse by self invoicing agencies. Be warned.

HMRC rules don't come in to it. Unless you're dealing with disbursements, recharges are simply an addition to your service and therefore entirely a matter of agreement between you and the client (or agency).

I can see why a client (agency) may question recharging expenses at the VAT inclusive price and then adding VAT on top.

From their point of view they would wonder why you aren't reclaiming the VAT on your VAT return and simply passing on the net cost. They may well say that the fact we are on the FRS and unable to reclaim the VAT is our problem, not theirs.

Anyway, it's an often repeated fallacy on here that if you're on the FRS and only recharging the net + VAT that you're losing out. You shouldn't be losing out because your VAT costs should be more than covered by your flat rate surplus (the difference between the VAT you charge and your flat rate percentage). If they aren't you should come off the FRS.

You say you've lost hundreds of pounds in VAT - what did you think the flat rate surplus was for? Many people on here seem to think it's free money. There's a reason why the percentage varies for different industries. It's there to cover your VAT costs in a simplified way - anything in addition to this is a bonus.

An IT contractor with a 14.5% flat rate would make £1300 flat rate surplus on a £50k turnover. You'd have to incur VATable expenses of £6500 before you exceeded that.