Expenses Claimed Back via Agency When Using Self-Billing

[Contreras]

The HMRC guidance is clear. It's not a disbursement.

But HMRC don't give a hoot on the amount you recharge, just that you add VAT on top.

That means for an original £100+VAT expense, you may charge £100+VAT, or £120+VAT, or anything else + VAT.

The actual amount is a contractual matter.

You can argue the toss with the agency, but really it should be written in the contract, especially if there was an expectation to recharge expenses. The agency might misinterpret VAT rules, but that that's not the same as breaking them, where the actual amount recharged is in question.

Clearly if YourCo generated the invoice it would not say £100 + VAT + VAT.

Just another reason to say no to self billing, IMHO.

[TheCyclingProgrammer]

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.

No, I'm not wrong. How could what you pass on to clients as far as recharged costs go be anything other than a contractual matter?

I'm well aware of the difference between a disbursement and a recharge and in this case we are discussing recharges.

A recharge is whatever you choose to recharge your client for costs incurred. What you recharge is entirely a contractual matter (it could be nothing, it could be a flat rate, it could be actual costs, it could be a fixed fee). HMRC don't care any more than what you charge as a daily rate - as long as you add VAT on top that's all that matters. It's all just part of your service fee. It doesn't even have to be itemised unless the client asks you to.

I might incur travel costs to client each day of £50. Contract states they will not pay my travel costs so I recharge £0. This is fine

Another client pays a flat rate of £30/day + VAT for travel costs so even though my travel costs were £50 I recharge them £30 + VAT. Also fine.

Another client states I can recharge any costs incurred net of VAT. I incur £120 inc VAT on costs so I recharge them £100 + VAT. Also fine.

When we discuss whether we recharge our expenses net of VAT or the gross cost (before adding our own VAT) the VAT element on our expense is a red herring - all we are really discussing is how much we are charging our clients for our service, not the VAT treatment. Whatever we charge, we add VAT on top.

Nowhere will you find HMRC guidance supporting your view that recharges should be charged at gross cost. I suggest you read it again. You'll find it has very little to say on recharges other than clarifying what they are and how they differ from disbursements:

https://www.gov.uk/guidance/vat-cost...a-disbursement

[TheCyclingProgrammer]

And here's the previous time we discussed this, with the same outcome. I wish people would learn to use the search function! /nluk

http://forums.contractoruk.com/accou...ur-client.html

And another one from early 2014:

http://forums.contractoruk.com/accou...ontractor.html

No wonder these expense/VAT threads give me a sense of deja vu. At least I'm consistent.*

Bottom line: recharge gross cost plus VAT if your client is happy for you to markup your expenses and make a small profit. HMRC don't give a tulip as long as you account for VAT on your sales correctly.

If they want you to recharge net cost then do that. Don't waste time arguing with agencies over HMRC guidance that doesn't exist or what some other contractor told you down the pub. Keep an eye on your VAT inputs vs FRS surplus over the course of the year to make sure remaining on the FRS remains profitable and remember you're already in a better position than somebody who has to absorb the costs in their daily rate!

* I did used to have more sympathy with the view that people on the FRS scheme should recharge at gross cost to avoid losing out but have come to change my view on that over the years. The FRS doesn't allow for direct reclaims of input VAT but it *does* have a means of input VAT recovery built into it.

[TheCyclingProgrammer]

In this case, the HMRC guidance is actually clear. Unfortunately, I seem to have mislaid my copy. Google should be a help.

Is this the copy you took when I first explained to you how this all works, including the difference between recharges and disbursements, 5 years ago.

http://forums.contractoruk.com/accou...submitted.html

You're right, Google was helpful.

[Fred Bloggs]

Thanks, yes that was Fircroft. I don't see any disagreement, what I said and what you said seems perfectly valid to me. Contractual issues don't enter into it as far as I can see. Never mind.