Requesting VAT after registration

[captainham]

Under VAT legislation, when recharging expenses you should reduce any VATable ones [to be VATable they have to be of a VATable nature i.e. hotel bills, parking fees, meals etc (certain expenses like flights and rail fares are not VATable) and they should contain a VAT number on the invoice if it is a VAT registered business] down to the pre-VAT element [e.g. if you had a hotel bill for £100.00 + VAT ( = £120.00) the amount that you would list on your expenses would be £100.00 and if you had a rail fare for £50.00 (that does not include VAT) the amount that you would list on your expenses would be £50.00], add them all up to get to a sub-total of expenses, add the expenses sub-total to the consultancy fees to come to a second sub-total and then charge VAT at 20% on the second sub-total to come to the grand total billable to the customer. By doing the `netting down’ process and then charging VAT at 20% on the invoice you are effectively charging VAT on any expenses that did not include VAT to begin with and you are also restoring any `netted down’ expenses back to their original costs and this the correct way to do it.

The amount that you can claim as expenses is the actual amount originally incurred when you originally paid for the costs.

Surely this depends on your contract with the end client though? My contract says the client will cover my expenses in full, and I'm on the Flat Rate Scheme, therefore if I incur a hotel bill of £100 + £20 VAT, then I charge them £120 + 20% VAT on top of that = total charge of £144. Otherwise I'm out of pocket to some degree.

EDIT: I agree with what you're saying in a normal scenario (just reviewed HMRC advice), but equally what I'm doing is also ok, as long as the client agrees with this of course (which they do in my case).

[malvolio]

Surely this depends on your contract with the end client though? My contract says the client will cover my expenses in full, and I'm on the Flat Rate Scheme, therefore if I incur a hotel bill of £100 + £20 VAT, then I charge them £120 + 20% VAT on top of that = total charge of £144. Otherwise I'm out of pocket to some degree.

EDIT: I agree with what you're saying in a normal scenario (just reviewed HMRC advice), but equally what I'm doing is also ok, as long as the client agrees with this of course (which they do in my case).

Do the sums:

You pay out £120, charge them £100 + £20 VAT and reclaim £20 and they reclaim £20. Total VAT paid £40, total VAT reclaimed £40, net VAT £0.

You pay out £120, charge them £120 + VAT and reclaim £20 and they reclaim £24. Total VAT charged £44, total reclaimed £44, net VAT £0.

So why bother with option 1?

[captainham]

Do the sums:

You pay out £120, charge them £100 + £20 VAT and reclaim £20 and they reclaim £20. Total VAT paid £40, total VAT reclaimed £40, net VAT £0.

You pay out £120, charge them £120 + VAT and reclaim £20 and they reclaim £24. Total VAT charged £44, total reclaimed £44, net VAT £0.

So why bother with option 1?

Except I don't reclaim any VAT cos I'm on FRS as mentioned. So like I say, in my case I'm better off charging VAT on VAT as I've agreed the client must cover my expenses in full, otherwise I lose out if I only invoice net of VAT.

[ctdctd]

Except I don't reclaim any VAT cos I'm on FRS as mentioned. So like I say, in my case I'm better off charging VAT on VAT as I've agreed the client must cover my expenses in full, otherwise I lose out if I only invoice net of VAT.

Which is just what is happening to me. Client Co pay expenses net of VAT so I lose out. Can't fight them, they are too big and finance is outsourced to do the needful.

I just try and keep VATable expenses to a minimum - which save them money as well. They get upset if I choose a cheap hotel compared to the permies when away from contracted location - but they can like it or lump it!

[malvolio]

Which is just what is happening to me. Client Co pay expenses net of VAT so I lose out. Can't fight them, they are too big and finance is outsourced to do the needful.

I just try and keep VATable expenses to a minimum - which save them money as well. They get upset if I choose a cheap hotel compared to the permies when away from contracted location - but they can like it or lump it!

Oh FFS...

If you're losing money by being on FRS, then get off FRS. It's hardly rocket science. You're a director, you have to operate your company in the most efficient way possible. If that means doing traditional, fully recoverable VAT accounting then do it.

[captainham]

Oh FFS...

If you're losing money by being on FRS, then get off FRS. It's hardly rocket science. You're a director, you have to operate your company in the most efficient way possible. If that means doing traditional, fully recoverable VAT accounting then do it.

Indeed. To add to this, you can leave FRS at any time, although normally only after the current VAT quarter. But you can't rejoin within 12 months though. Certainly not worth sticking with it if it's costing you money but that's a no-brainer.

Although you should do the calculation to see if you're losing out overall by being on FRS. By that I mean that you might be losing out on the occasional expenseable hotel stay, but you might still be gaining overall by only handing over 14.5% (or whatever your % is) of your sales turnover in VAT.

I would have thought the occasional trip is unlikely to have you losing out if you're invoicing at a decent daily whack, but then I haven't done the calculations to verify that (cos I'm lazy and I don't have this problem )

[Scott C Accountant]

Under the Flat Rate scheme you can only claim input VAT on capital purchases of £2,000 or more.

It is a feature of the Flat Rate Scheme that you cannot claim VAT on other expenses but by paying over a smaller percentage effectively on your income you still gain here!

Therefore my original post about netting down VAT inclusive expenses still applies or otherwise you are charging VAT on the VAT which is incorrect!

[Contreras]

Under VAT legislation, when recharging expenses you should reduce any VATable ones [to be VATable they have to be of a VATable nature i.e. hotel bills, parking fees, meals etc (certain expenses like flights and rail fares are not VATable) and they should contain a VAT number on the invoice if it is a VAT registered business] down to the pre-VAT element [e.g. if you had a hotel bill for £100.00 + VAT ( = £120.00) the amount that you would list on your expenses would be £100.00 and if you had a rail fare for £50.00 (that does not include VAT) the amount that you would list on your expenses would be £50.00], add them all up to get to a sub-total of expenses, add the expenses sub-total to the consultancy fees to come to a second sub-total and then charge VAT at 20% on the second sub-total to come to the grand total billable to the customer. By doing the `netting down’ process and then charging VAT at 20% on the invoice you are effectively charging VAT on any expenses that did not include VAT to begin with and you are also restoring any `netted down’ expenses back to their original costs and this the correct way to do it.

Actually, the net amount charged to the client is wholly a commercial matter agreed between the contractor and client, and not defined in legislation. There's nothing to say you can't mark this up with a 20% "admin fee" if the client would swallow it (although good luck with that).

All HMRC want to know is that you added *your* VAT on top of whatever amount is charged to the client, with a valid VAT invoice with *your* VAT number, and NOT that you passed on original receipts for the client to reclaim VAT against.

So if you can get way with charging VAT on top of the original full cost without netting down then go for it, but let's be clear this is not charging VAT on top of VAT, it is charging VAT on top of an arbitrary amount commercially agreed with the client. The client can only reclaim the VAT you added, and only you can reclaim the VAT on the original purchase (assuming VAT registered and not on the FRS).

That said, I would much prefer to negotiate a flat rate overnight expenses, or a separate "away" day rate, and avoid any arguments about the quality of the hotel & meals etc.

Also note that recharging expenses is not to be confused with charging disbursements, where you pass on the exact cost of a purchase made on behalf of the client.

[ctdctd]

Oh FFS...

If you're losing money by being on FRS, then get off FRS. It's hardly rocket science. You're a director, you have to operate your company in the most efficient way possible. If that means doing traditional, fully recoverable VAT accounting then do it.

It's a 10 week gig, you can't change VAT accounting mid period, and unlike other gigs, I didn't know this was their policy untill I got the first payment 5 weeks into the gig.
If they extend, I may change VAT accounting or I may not. Depends if I can be bothered!

(Luckily, I don't have an accountant so became aware of it as soon as I got payment. If I left it all to an accountant, I would fully expect not to be told until the year end!)

[ctdctd]

I would have thought the occasional trip is unlikely to have you losing out if you're invoicing at a decent daily whack, but then I haven't done the calculations to verify that (cos I'm lazy and I don't have this problem )

decent daily whack? Haven't had one of those for a few years (oh err missus), support monkeys don't get paid the £600 a day everyone else on here earns.

It's not a problem for occasional rechargable VATable expenses - it becomes more of one when my co has to expense a hotel 4 nights a week.
As above, I can live with it for a few weeks, then we'll see.