Flat Rate - Claiming VAT inclusive expenses from clients

[ste]

Invoicing under flat rate scheme.

If I wish to claim back costs incurred whilst working for a client by sending the receipts; how do I invoice.

eg: a telephone bill for £11.75 including VAT

Of course I cannot charge £11.75 plus VAT (vat on vat), but if I invoice the exact ammount will I not be worse of by having to pay the flat rate on what I have simply claimed back??

Also, if I have a receipt with no VAT (eg: travel ticket) do I just add 17.5% to my invoice in the normal way?

Thanks for your help.

[VectraMan]

As I understand it, it's a sale, so you have to add on VAT even if it's to reimburse you for something that's VAT free (like a train ticket).

If the client is happy to pay you £11.75 back for the telephone calls then you invoice £11.75 + 17.5% (so yes VAT on VAT). They may only be prepared to reimburse you the net value, but it's between you and the client. But regardless, it would be illegal for you not to add VAT to your invoice.

FRS makes no difference, as that's just between you and the revenue.

But IANAA.

[malvolio]

Yep. Invoice rules are to total all charges and add VAT to that amount. If one of the components already contains VAT amounts, it doesn't matter - and if you work it out (ignoring the FRS bit) you'll find the total VAT is either contra'd out or the end consumer pays it, which is the whole idea.

FRS is effectively a discount to you for simplifying things, it does not affect how you charge VAT to your clients.

[THEPUMA]

Yep. Invoice rules are to total all charges and add VAT to that amount. If one of the components already contains VAT amounts, it doesn't matter - and if you work it out (ignoring the FRS bit) you'll find the total VAT is either contra'd out or the end consumer pays it, which is the whole idea.

FRS is effectively a discount to you for simplifying things, it does not affect how you charge VAT to your clients.

I'm not sure whether I am disagreeing with Mal or not but, to be clear, if you incur an expense of £10 + VAT and charge your client £10 + VAT, you are worse off than you would have been had you not incurred the expense on behalf of your client, assuming the VAT is irrecoverable under the flat rate scheme.

I find, however, that most clients would prefer to charge £10 + VAT (as opposed to £11.75 + VAT) to their client rather than jeopardise the goodwill of their relationship with their client over such a petty matter, despite being worse off.

[malvolio]

No, what I'm saying is that if you are registered for VAT, FRS or not, you do not have a choice about how to apply VAT to your invoice, other than by not charging for the item in the first place - and why would you do that?

Your hotel room cost £117.50, i.e. £100 + £17.50 VAT. You charge your client £117.50 + £20.56 VAT. You have gained £20.56 as a result, and that goes straight to HMRC (ignoring FRS under which you give back slightly less). At no point do you lose money.

To take that further, under non-FRS rules, that transaction contained £38.06 VAT but you would offset the £17.50 VAT element of your hotel bill as input VAT so you still end up with £20.56 to pay back

[Spacecadet]

Expenses plus VAT is the standard

Alternatively, just charge a day rate that is inclusive of any expenses you expect to incur.

The client (if not on FRS themselves) should be able to claim the VAT back as it is a business incurred expense for them and they will have your VAT registration number from the Invoice.

Don't forget, You're invoicing them "at cost" for expenses you have incurred in providing your services. You are not an employee reclaiming expenses!

Edit: and never send the client receipts unless they explicitly query the invoice and ask for proof of the expenses. Instead, give a break of the charges in the invoice

[THEPUMA]

No, what I'm saying is that if you are registered for VAT, FRS or not, you do not have a choice about how to apply VAT to your invoice, other than by not charging for the item in the first place - and why would you do that?

Your hotel room cost £117.50, i.e. £100 + £17.50 VAT. You charge your client £117.50 + £20.56 VAT. You have gained £20.56 as a result, and that goes straight to HMRC (ignoring FRS under which you give back slightly less). At no point do you lose money.

To take that further, under non-FRS rules, that transaction contained £38.06 VAT but you would offset the £17.50 VAT element of your hotel bill as input VAT so you still end up with £20.56 to pay back

I agree that you are obliged to charge VAT on all expenses recharged (irrespective of the VAT status of the expense in question).

However, if you are not on the FRS I don't understand why you suggest charging £117.50 + VAT (unless it is an arbitrary profit-making exercise). You would logically charge £100 + VAT as that is the cost to you.

If you are on the FRS you may consider charging £117.50 + VAT in order to break even on the exercise but if you are not on the FRS you are simply maiing a profit of £17.50 if you charge £117.50 + VAT.

[ste]

Many thanks to all for your helpful replies.

Much appreciated.