VAT on expenses or not?

[TheCyclingProgrammer]

Thanks to all who have contributed.

Homosapien raises a great point. If I request expenses to be paid directly to me and not the company thus avoiding the need to charge VAT twice. VAT is paid at source so the VAT man is happy and I don't have to charge additional expenses to the client.

Thanks all.

Assuming your client is happy for cover the cost of your expenses you have two choices:

1) Your client pays for your expenses directly.
2) You pay for them personally, reclaim the cost from YourCo and YourCo invoices the client at an agreed rate.

You cannot bypass the need to invoice the client for your recharged costs and avoid accounting for VAT by directly claiming the costs from them via their expenses system. You are not their employee and your client should not be reimbursing you personally for anything. Any money the client sends your way should be to YourCo in receipt of a valid invoice.

It's up to you whether or not you charge £83.33 + VAT or £100 + VAT. Forget the VAT on the original transaction between you and the taxi driver, it's irrelevant as it's a completely different supply. The only supply that matters here is the supply of services from YourCo to client which happens to include recharged costs.

[Moss Piglet]

Thanks for your reponses CyclingProgrammer.

I did think I had this sorted. One thing I didn't mention is that my end client pays my agency and I deal with the agency. So when I incur an out of pocket expense I get a receipt and claim from my agency the full amount. The end client pays this to the agency and the agency pass it to me. I did ask that this was paid to my personal bank account, but it went to my company and now I have the VAT issue. I gave a taxi fare as an example, but it also applies to hotels, air fares and other expenses I have paid for from my own pocket. Oh, and the taxi firm is VAT registered.

Whilst I was finishing work I got this from my accountant.

"It’s fine if your client paid your expenses directly into your personal bank account. There are no legal implications of doing so.

The only thing to keep in mind is that if you’re receiving the reimbursement of those expenses into your personal bank account you shouldn’t charge VAT to your client, as you as an individual are not VAT registered. You must only charge the exact amount of the expenses to your client."

[malvolio]

I never understand why people use their own money for business expenses. It adds a whole unnecessary layer of complication for no actual benefit.

Get a company credit card and keep it simple.

[TheCyclingProgrammer]

The VAT issue you think you have is a non issue.

YourCo incurs an expense (because it has reimbursed you for your out of pocket expenses) which it recharges to the agency.

Let’s say you agree to recharge the client the net cost, not the gross.

You pay for the taxi fare which is £100 inc VAT.
YourCo pays you the £100 so you are no longer personally out of pocket.
YourCo cannot reclaim the VAT on the cost as you’re ok the FRS so it is now £100 down.
YourCo recharges the expense at the net cost of £83.33 which it adds VAT to as it is VAT registered. Agency received an invoice for £100 inc VAT.
Agency passes the same amount on to the client.
Both the agency and client recover the VAT, making the net cost to the end client £83.33.
YourCo needs to account for and pay VAT on the £100 at your FRS percentage, leaving it with less than the £100 it incurred in reimbursing you.

Looking at the above it might seem like YourCo has lost out but you’re missing something. Every time you account for VAT on your sales you pay less VAT than you charge. This difference, or surplus VAT, accumulates over the year on all of your sales. On a flat rate of 14.5% this can easily add up to a couple of grand in surplus. The whole point of this surplus is to cover any input VAT you may incur over the year instead of reclaiming it directly. This is the WHOLE POINT of how the FRS works.

If you are not making enough surplus to cover your input VAT - which may well be the case if you’re on the limited cost trader rate -then the simple solution is to come off the FRS. Or get the client to agree to being recharged the gross amount plus VAT.

[craigy1874]

Thanks for your reponses CyclingProgrammer.

Whilst I was finishing work I got this from my accountant.

"It’s fine if your client paid your expenses directly into your personal bank account. There are no legal implications of doing so.

The only thing to keep in mind is that if you’re receiving the reimbursement of those expenses into your personal bank account you shouldn’t charge VAT to your client, as you as an individual are not VAT registered. You must only charge the exact amount of the expenses to your client."

Can't say I agree with your accountant at all! You personally have no engagement with your end client, how on earth can they pay you expenses personally?

[Fred Bloggs]

Can't say I agree with your accountant at all! You personally have no engagement with your end client, how on earth can they pay you expenses personally?

Another way I have seen this done is when I traveled with a permie bloke, he paid everything for me and claimed back expenses for both of us. It worked out fine since Big Co had given him a corporate credit card. Nobody lost out. Everyone was happy.

[oilboil]

Another way I have seen this done is when I traveled with a permie bloke, he paid everything for me and claimed back expenses for both of us. It worked out fine since Big Co had given him a corporate credit card. Nobody lost out. Everyone was happy.

Of course that now means if you want to go out to a "nice bar" that charges "£20 per beer but the scenery is scantily clad" you need to take said permie with you...