Client will not accept invoice and VAT charge for expenses

[paul11]

My (VAT registered) LTD is contracted direct for a client, no agent involved.

For business trips the client is insisting I use their standard method of claiming expenses, that is submit the original receipts with their pro forma; they will then pay to my personal account or Ltd co. account. If to business account then I have to deduct VAT from the payment to me; so I lose out.

What are the implications of accepting payments to my personal account?

[Old Greg]

My (VAT registered) LTD is contracted direct for a client, no agent involved.

For business trips the client is insisting I use their standard method of claiming expenses, that is submit the original receipts with their pro forma; they will then pay to my personal account or Ltd co. account. If to business account then I have to deduct VAT from the payment to me; so I lose out.

What are the implications of accepting payments to my personal account?

I have a slightly more complicated version of this, in that my Ltd's client's client is reimbursing me personally - long story. Advice from accountant is that this should be OK. Speak to your accountant.

[northernladuk]

Business/accountancy implications are none. It's just another way to get your money back..

IR35 implications are bad though. You are following client process and direction. It is not the be all and end all but it is a flag. I would quickly check your contract again to make sure it is IR35 friendly and more importantly check other aspects of your working conditions to see if they are also IR35. If they are not then you need to operate in IR35.

[see]

But your business is vat registered so you can claim the back? Or are you on the FRS and complaining that you're not making money out of it?

Am I missing something?

*Edit - I just reread and see you don't now have the oringinal receipts so that might make it impossible to claim back the VAT.

[diesel]

in my last client, some contractors used to claim expenses via Client system and get paid the monies expended directly back to personal account.

To show that i was a business and within IR35 etc i submitted my expenses form (signed by client) with copies of receipts (i always held originals in case they got lost) with an invoice to the agent which always included +VAT. The client paid my expenses back thro the agent etc.

Client never lost out by paying me the VAT as they can recover this. If client refuse to pay you tell them that as part of Ir35 if they are audited they will be liable to HMRC penalties (usually good to scare them).

If its a one off expenses just claim it thro the client system to keep matters simple. However, if its a regular thing go and see the finance manager and explain the situation that you are in business and yoru company will not allow you to claim expenses directly as its the Ltd co and client have a contract, not you and client.

[Wanderer]

But your business is vat registered so you can claim the back? Or are you on the FRS and complaining that you're not making money out of it?
Am I missing something?
*Edit - I just reread and see you don't now have the oringinal receipts so that might make it impossible to claim back the VAT.

There are several ways to do it, let's take an expense of £10 inc VAT as an example. These are mutually exclusive, you can't do more than one of them:

1. You incur a £10 expense and invoice the client for it. You then add VAT to the original expense amount (inc VAT) so the client pays £10 plus VAT (they reclaim the VAT on their return as an input so the net cost to them is £10).

2. You incur a £10 expense and submit a VAT receipt though their expenses system. The client reimburses you personally for the £10 and they claim back the 20% VAT leaving them with a net cost of £8.33. (This might be an IR35 pointer according to some people, anyone got a reference for this?)

3. You incur a £10 expense and don't claim it back from the client. Your LTD then claims back the VAT (presuming you aren't on the VAT FRS) and the expense is set against your company profits to reduce your corporation tax.

To be honest, I can't be arsed messing about with their petty rules and getting expenses approved etc. My company generally just pays the expenses itself unless the expenses are substantial (flights/hotels) in which case I get the client to do the booking for me. If there is going to be a lot of expenses involved then I just arrange to bill an extra few hours to cover it but I've been fortunate not to have to travel much for business so it's never really been a problem.

[Wanderer]

To show that i was a business and within IR35 etc i submitted my expenses form (signed by client) with copies of receipts (i always held originals in case they got lost) with an invoice to the agent which always included +VAT. The client paid my expenses back thro the agent etc. Client never lost out by paying me the VAT as they can recover this.

They do lose out though.

If a worker incurs an expense of £10 inc VAT and then invoices it to the client through a LTD company, the client must pay up £12 then claim back £2 in VAT so the net cost to the client is £10 (presuming no FRS).

If the client reimburses the worker directly then the expense is £10 inc VAT, the client claims back the VAT leaving the client with a net cost of £8.33.


So from a client's point of view, it's better to reimburse a worker personally than to have it as a rechargable expense by the workers company. Or am I missing something here?

*Edit* - I was missing something, see response below:

VAT is a tax that is payable to HMR&C and the rules are the rules. In this case, if the agency has the receipt then they will be able to reclaim the VAT element of the expense as well as the VAT element of the invoice which details the expense; if companies are VAT registered they cannot 'lose out' unless they don't have a VAT receipt.

[Acme Thunderer]

Avoiding VAT on VAT

They do lose out though.

If a worker incurs an expense of £10 inc VAT and then invoices it to the client through a LTD company, the client must pay up £12 then claim back £2 in VAT so the net cost to the client is £10 (presuming no FRS).

If the client reimburses the worker directly then the expense is £10 inc VAT, the client claims back the VAT leaving the client with a net cost of £8.33.


So from a client's point of view, it's better to reimburse a worker personally than to have it as a rechargable expense by the workers company. Or am I missing something here?

My current agency insists that your expenses should have VAT removed from them before you add your VAT. This way the client avoids the VAT on VAT scenario.

[LisaContractorUmbrella]

VAT is a tax that is payable to HMR&C and the rules are the rules. In this case, if the agency has the receipt then they will be able to reclaim the VAT element of the expense as well as the VAT element of the invoice which details the expense; if companies are VAT registered they cannot 'lose out' unless they don't have a VAT receipt.

[Moscow Mule]

So from a client's point of view, it's better to reimburse a worker personally than to have it as a rechargable expense by the workers company. Or am I missing something here?

The client most likely isn't on the VAT flat rate scheme.

Every penny he spends in VAT on you comes off his VAT bill on what he charges out.