Charge client VAT on train ticket?

[MugsGame]

Hello,

I've done some work for a client and need to bill them for the train fare - do I charge VAT on my invoice for the ticket cost?

I've looked into this at HRMC but could not find a clear answer (surprise!)

I run a standard Ltd co, and am on the flat rate VAT scheme, if that matters.

Anyone?

MTIA.

[pmeswani]

Hello,

I've done some work for a client and need to bill them for the train fare - do I charge VAT on my invoice for the ticket cost?

I've looked into this at HRMC but could not find a clear answer (surprise!)

Anyone?

MTIA.

Expenses are free of additional VAT on top of what you paid for it. So even if you get charged VAT, your have to submit the expense in it's entirity without any additional VAT on top. If the Expense has incurred some VAT, you can break down the expense to show pre-VAT total and the VAT amount... but you should not (please note that i did not say cannot as this may be questioned) charge additional VAT on expenses.

[expat]

Expenses are free of additional VAT on top of what you paid for it. So even if you get charged VAT, your have to submit the expense in it's entirity without any additional VAT on top. If the Expense has incurred some VAT, you can break down the expense to show pre-VAT total and the VAT amount... but you should not (please note that i did not say cannot as this may be questioned) charge additional VAT on expenses.

You are absolutely right. If you are merely passing an expense on to the client, so that it goes right through YourCo without stopping, then you pass it on as is. If it had VAT on it when you paid it, then it still has the same VAT on it when you pass it to the client - you do not add any more VAT.

If on the other hand you are doing something quite different from an accounting point of view, that is, sending the client a bill (albeit the reason they will pay the bill is that it was an expense) then you add VAT. Note that the accounting is different: in this case it is YourCo that is paying the train fare, and ClientCo is merely paying a bill from YourCo.

I'd do it the first way.

BTW train fares don't have VAT anyway.

[XLMonkey]

Expenses are free of additional VAT on top of what you paid for it.

Not correct, unfortunately. You can, and should, charge VAT on all goods and services that you provide at the appropriate rate. Most of the time, it doesn't matter. For example, if I stay at a hotel:

the hotel charges myco 80 GBP plus VAT at 17.5% = 94 GBP
myco charges the client 80 GBP plus VAT at 17.5% = 94 GBP

However, there are some exceptions, particularly where the input cost has a different VAT rate to be applied to it. The example of a train ticket is a good one, since there is no VAT applied to train tickets. In this case

the train company charges myco 80 GBP plus VAT at 0% = 80 GBP
but myco charges the client 80 GBP plus VAT at 17.5% = 94 GBP

The reason for the difference is that you are not selling the train ticket to your client - your are selling a service (in this case, the service is "you getting on a train and going to the destination"). If you were selling the ticket, then you would charge VAT at 0% instead.

Make sense? I should think not....

[expat]

Not correct, unfortunately. You can, and should, charge VAT on all goods and services that you provide at the appropriate rate. Most of the time, it doesn't matter. For example, if I stay at a hotel:

the hotel charges myco 80 GBP plus VAT at 17.5% = 94 GBP
myco charges the client 80 GBP plus VAT at 17.5% = 94 GBP

However, there are some exceptions, particularly where the input cost has a different VAT rate to be applied to it. The example of a train ticket is a good one, since there is no VAT applied to train tickets. In this case

the train company charges myco 80 GBP plus VAT at 0% = 80 GBP
but myco charges the client 80 GBP plus VAT at 17.5% = 94 GBP

The reason for the difference is that you are not selling the train ticket to your client - your are selling a service (in this case, the service is "you getting on a train and going to the destination"). If you were selling the ticket, then you would charge VAT at 0% instead.

Make sense? I should think not....

Yes, that's my "version 2". It is possible but not obligatory: you can just pass the expense on to the client, as against billing them for it.

[VectraMan]

That's nice and clear then.

I've done some work for a client and need to bill them for the train fare - do I charge VAT on my invoice for the ticket cost?

Yes you do. If you invoice them, you have to charge VAT. Remember they claim back the VAT, so the VAT is cancelled out.

[THEPUMA]

Yes, that's my "version 2". It is possible but not obligatory: you can just pass the expense on to the client, as against billing them for it.

Not true. In order not to charge VAT, the expense must qualify as a disbursement, which is quite tightly defined.

More interesting is the question of whether to charge VAT on top of VAT (ie expense = £100 + VAT - you charge your client £117.50 + VAT) when you are on the flat rate scheme. There are 2 schools of thought here.

You should charge VAT on VAT if you don't think that you should be financially disadvantaged every time you incur an expense on behalf of a client; or

You shouldn't charge VAT if you feel that your client shouldn't be punished as a result of you opting to operate under the flat rate scheme.

Most clients tend to go for the latter when explained to them as they don't want to jeopardise their relationship with their clients for a relatively modest amount.

There is of course a third option as the first option results in you being better off to the extent of the flat rate profit on the expenses so you could calculate exactly how much you need to charge in order to break even!

PUMA

[XLMonkey]

I run a standard Ltd co, and am on the flat rate VAT scheme, if that matters.

It does matter. Since you are on the flat rate scheme, you will pay VAT (probably at 13%) on the total value of your sales in each quarter. Your sales includes your expenses (since you are recharging these to the client).

If you are on the flat rate scheme then you cannot reclaim VAT on your input costs (the expenses yourco paid out). As a result, you will tend to lose money on your expenses if they have VAT on them. For example:

you stay at a hotel at 80 GBP plus VAT = 94 GBP
yourco charges the client 80 GBP plus VAT = 94 GBP
yourco pays HMRC 13% of 94 GBP = 12.22 GBP
net loss = 12.22 (since yourco paid out 12.22 more than the it reclaimed)

But, if the expense has no VAT on it, then you make money
you take a train at 80 GBP plus 0% VAT = 80 GBP
yourco charges the client 80 GBP plus VAT = 94 GBP
yourco pays HMRC 13% of 94 GBP = 12.22 GBP
net profit = 1.78

Generally, the higher your rechargeable expenses, the less attractive the flat rate scheme becomes.

[Moscow Mule]

Yes, that's my "version 2". It is possible but not obligatory: you can just pass the expense on to the client, as against billing them for it.

Why wouldn't you add VAT if you're on the FRS?

I alway add VAT on top of expenses as I can argue I've added value (that and the accountant said to do it like that)...

[Moscow Mule]

It does matter. Since you are on the flat rate scheme, you will pay VAT (probably at 13%) on the total value of your sales in each quarter. Your sales includes your expenses (since you are recharging these to the client).

If you are on the flat rate scheme then you cannot reclaim VAT on your input costs (the expenses yourco paid out). As a result, you will tend to lose money on your expenses if they have VAT on them. For example:

you stay at a hotel at 80 GBP plus VAT = 94 GBP
yourco charges the client 80 GBP plus VAT = 94 GBP
yourco pays HMRC 13% of 94 GBP = 12.22 GBP
net loss = 12.22 (since yourco paid out 12.22 more than the it reclaimed)

But, if the expense has no VAT on it, then you make money
you take a train at 80 GBP plus 0% VAT = 80 GBP
yourco charges the client 80 GBP plus VAT = 94 GBP
yourco pays HMRC 13% of 94 GBP = 12.22 GBP
net profit = 1.78

Generally, the higher your rechargeable expenses, the less attractive the flat rate scheme becomes.

yourco charges the client 80 GBP plus VAT Plus VAT = 110 GBP