VAT on expenses question

[Lance]

I'm pretty sure I have this already, but want to check.

I have a meal and some drinks. I am charged VAT at a mix of 5% and 20%.
I bill the client/agency the value of the receipt minus the VAT, and add 20% on to that as my value add.

The agency are not happy and think my VAT should match the receipt VAT. I disagree.

I'm right. They're wrong..... Or is that incorrect?

[malvolio]

Opinions differ.

My view is that the whole bill is your expense, incurred as part of providing the service, and so is part of your invoice total o which you add VAT at the prevailing rate. VAT is neutral as far as registered entities are concerned so adjusting sub-totals is really a waste of effort.

Others feel that VAT is somehow an entirely separate element of costs and should be adjusted as you suggest. However if you remember that VAT is added as part of a service (i.e. in this case the selling of prepared food, not its creation) you might consider that view to be wrong.

Either way it's never worth arguing about it. Follow the rules the agency want to impose.

Other opinions are available

[Craig@Clarity]

It still amazes me that agencies still get this one wrong. Your company incurs an expense whether there is any VAT on it or not. Let's say £100 plus VAT = £120
Your contract with the agency says you can "recharge" your expenses 100% to the end client. Therefore on your invoice you have one line that says Consultancy of £X and on the second line you have "Expenses Recharged" of £120. You then apply VAT to the whole lot.

It's the expenses recharged that stumps them. In reality, the expenses recharged is just 'a figure'. It can be anything (£50, £100, £1000). Whatever it is, you add VAT on top. What you're not doing in this case (and this is where the agency get confused) is adding VAT on top on VAT. You're adding VAT on top of a figure recharged to the client. If it was a disbursement then you would charge the net amount (£100) and add VAT on top.

To the agency, it makes no difference and there is no financial consequence to them. They receive an invoice for expenses recharged of £120 plus VAT. They in turn invoice the end client £120 plus VAT. So in one hand they pay your company £24 VAT and on the other claim £24 VAT from the end client.

[Lance]

It still amazes me that agencies still get this one wrong. Your company incurs an expense whether there is any VAT on it or not. Let's say £100 plus VAT = £120
Your contract with the agency says you can "recharge" your expenses 100% to the end client. Therefore on your invoice you have one line that says Consultancy of £X and on the second line you have "Expenses Recharged" of £120. You then apply VAT to the whole lot.

It's the expenses recharged that stumps them. In reality, the expenses recharged is just 'a figure'. It can be anything (£50, £100, £1000). Whatever it is, you add VAT on top. What you're not doing in this case (and this is where the agency get confused) is adding VAT on top on VAT. You're adding VAT on top of a figure recharged to the client. If it was a disbursement then you would charge the net amount (£100) and add VAT on top.

To the agency, it makes no difference and there is no financial consequence to them. They receive an invoice for expenses recharged of £120 plus VAT. They in turn invoice the end client £120 plus VAT. So in one hand they pay your company £24 VAT and on the other claim £24 VAT from the end client.

I had this battle a few years ago with a train ticket. They were adamant I cannot charge VAT for that on the basis that trains are VAT exempt. In the end they asked their accounts department who confirmed that I have to charge 20% VAT on an expense and the only time I don't is if it is a disbursement (for which there are clear rules and travel expenses are not part of those rules).

[ladymuck]

I similarly had an argument with an agency over a disbursement and the VAT on that. I had to send them links to the HMRC manual before they believed me that I'd done it right.

The agency should not be using your receipts to reclaim VAT, they use your invoice for that. The only reason you supply receipts is to prove that the expenditure charged (per Craig's example) is correct and you're not stiffing them. Your company reclaims the VAT on the receipts as that's the VAT it's incurred.

[Lance]

I similarly had an argument with an agency over a disbursement and the VAT on that. I had to send them links to the HMRC manual before they believed me that I'd done it right.

The agency should not be using your receipts to reclaim VAT, they use your invoice for that. The only reason you supply receipts is to prove that the expenditure charged (per Craig's example) is correct and you're not stiffing them. Your company reclaims the VAT on the receipts as that's the VAT it's incurred.

Indeed.

They don't like my invoices as they do self-billing. But I sent them a copy invoice and suggested they use that to get their admin correct. So far they seem happy.
Oddly they don't bat an eyelid at 20% VAT on 45p per mile.

[ladymuck]

Indeed.

They don't like my invoices as they do self-billing. But I sent them a copy invoice and suggested they use that to get their admin correct. So far they seem happy.
Oddly they don't bat an eyelid at 20% VAT on 45p per mile.

You're missing a trick there!

I used to charge one client £1 a mile +VAT for mileage. 45p per mile is what I then paid myself via expenses in order to be within the rules

[Fred Bloggs]

I similarly had an argument with an agency over a disbursement and the VAT on that. I had to send them links to the HMRC manual before they believed me that I'd done it right.

The agency should not be using your receipts to reclaim VAT, they use your invoice for that. The only reason you supply receipts is to prove that the expenditure charged (per Craig's example) is correct and you're not stiffing them. Your company reclaims the VAT on the receipts as that's the VAT it's incurred.

Spot on. I had a massive falling out once with Fircroft over this. I did exactly what you did regarding HMRC guidance. I even went to the trouble of marking up the HMRC guidance with the exact scenario quoted by HMRC guidance substituting my name and company name into the guide note. They refused to accept the client signed off expense claim document, demanding my receipts which are obviously nothing to do with them. Nope, wouldn't pay. In the end it was a bad debt for my company. I never worked through them again.

[Lance]

You're missing a trick there!

I used to charge one client £1 a mile +VAT for mileage. 45p per mile is what I then paid myself via expenses in order to be within the rules

Yeah I know, but the work is more valuable than a few quid in expenses.

Best one I had was charging for 2 premium economy flights (based on a quote from BA) at £6,000 when they cost me some Avios and £1,500

[malvolio]

Yeah I know, but the work is more valuable than a few quid in expenses.

Best one I had was charging for 2 premium economy flights (based on a quote from BA) at £6,000 when they cost me some Avios and £1,500

Always keep in mind the HMRC logic on expenses - if you make a profit out of it, you're doing something wrong, and probably illegal.

But then again there are no rules about what you charge your client, above or even below the actual cost...