Expenses and the FRS

[blacjac]

Hi Blacjac

That is correct. You certainly have to charge your client VAT on your expenses if your underlying services are VATable. The question is, if I incur a hotel expense of £100 + VAT, should I recharge my client £100 + VAT = £117.50 or (£100 + VAT) + VAT = £138.06?

PUMA

That is a verry similar question to the one I asked my accountant.

His answer would be (Exp + VAT) + VAT, so in your example £138.06.

His reasoning being, you are not actually claiming the expense off them, you are adding £117.50 to your invoice to cover your costs, so VAT goes on top.

What would your advice be if I had asked you that question?

[blacjac]

<snip> it might be better not to argue and accept the small loss rather than be seen to be trying it on.

I agree with the sentiment that it is sometimes better to make a loss in order to further the business relationship. However if my account has told me I must be charging VAT on top, then I will charge VAT on top. As the old saying goes, dont f**k around with the VAT or the VAT man will f**k around with you!


If it did ever become an issue for me (it never as yet and I have been recharging expenses to customers for years), then I would give them a discount on the invoice total rather than be seen to be not charging VAT on one element of it.

[VectraMan]

However if my account has told me I must be charging VAT on top, then I will charge VAT on top. As the old saying goes, dont f**k around with the VAT or the VAT man will f**k around with you!

But you're not. Sending the invoice without VAT would be naughty, but as long as the invoice has VAT it doesn't matter how you came to the net value.

[blacjac]

But you're not. Sending the invoice without VAT would be naughty, but as long as the invoice has VAT it doesn't matter how you came to the net value.

Ahh, I see your argument. Still charge VAT on top of whatever you add for expenses, but just add less (the nett of VAT amount) for the expenses.
Yes that would work .

[Silvertop]

Someone just sent me an excerpt from the VAT guide - section 25.1 talks about the definition of disbursements for VAT purposes.

For these sorts of expenses which are incurred during the course of providing a service, the guide says they must be included in the value of those supplies when VAT is calculated, so it looks as though the guide bears me out (unless I'm misinterpreting it).

[Silvertop]

I haven't misinterpreted it - I put in my latest invoices and was told again that I couldn't put VAT on VAT. I told them I was charging VAT on expenses which have been incurred in the process of providing a value added service and quoted section 25.1 of the VAT guide, and now the accounts department has backed down. Result.

[blacjac]

yey!

[malvolio]

yey!

Well agreed, for FRS people - you're netting £3.60 per £100 invoiced for something you've bought that contains a VAT element already. Might buy a decent bottle of whisky by the end of the year!

But for non-FRSers, work the VAT numbers thorugh the whole supply chain and you'll find the net VAT paid is actually the same either way whether or not you put VAT on VAT or not - it just gets handed back to the Vatman by different people.