VAT on expenses

[malvolio]

I'm not disagreeing with you, I'm merely stating that sometimes we have no option to stick with the 'direct route' as you call it. It does matter if you charge net or gross if you're the end client, as one costs the end client more money.

Essentially it doesn't matter what the agency passes on to the client (and whether they add their own VAT on top of a figure that already includes VAT or not), as this is down to the commercial agreement between those two parties.

In the same way, how you reclaim your own expenses from the agent will depend on the commercial agreement you have with the agent, and it is this that (can) dictate whether you charge net or gross of VAT.

That's the only point I'm trying to make.

And the point I'm trying to make is that you don't change the VAT position either way, merely how much of the original cost you're charging to the agency (and hence reducing the VAT you are applying to that invoice). As I showed earlier, it makes no difference to the net VAT position until you reach someone - probably a customer of the end client - who's not VAT registered. All you're adding is complexity in the audit trail.

So why do you suppose the agency want you to charge net of VAT?

[captainham]

And the point I'm trying to make is that you don't change the VAT position either way, merely how much of the original cost you're charging to the agency (and hence reducing the VAT you are applying to that invoice). As I showed earlier, it makes no difference to the net VAT position until you reach someone - probably a customer of the end client - who's not VAT registered. All you're adding is complexity in the audit trail.

So why do you suppose the agency want you to charge net of VAT?

I'm not saying it makes any difference to the net VAT position...I'm saying it makes a difference to how much the client ends up paying for the expense. The VAT charged on my invoice is irrelevant, as the agency/client will reclaim that anyway.

What is relevant is the starting position for what I've added my VAT too...charging expenses net of VAT is cheaper for the client, so if that's what the contract says, that's what you do.

It may well be adding complexity in the audit trail but this is also irrelevant! If it costs the client more money then you can't blame them for wanting to add some complexity if it reduces their costs!

The examples I gave in post 8 show this. You're getting hung up on the VAT position when the client doesn't care about this; they (may) care what the starting position is before VAT is added as it could needlessly cost them more money, fact.

[NotAllThere]

You add on your invoice at least enough to recover your cost. That is all.

Whether the expense has a VAT receipt (or VAT added) or not is irrelevant when you are charging it to the agency/client. It is merely an item on your invoice. There is no VAT chain for these transactions.

Yes, the client may end up paying more than he would have done if he'd settled the bill himself. Which is why it is in their interest to pay the hotel bill on your company's behalf.

[SarahL2012]

Cross accountant!

Let's forget about reclaiming the VAT ourselves as most of us are on FRS, so we can't reclaim this anyway.

..

You ARE reclaiming the VAT - the whole point about the FRS scheme is that you pay over less than 20% to HMRC because there is an effective recovery rate in there. So if your hotel bill costs £100 plus £20 VAT then you should be billing your client / agency £100 plus £20 VAT.

You DO recover the £20 you have spent on the hotel through your VAT return, its just by virtue of paying over less than 20% of VAT on sales to them.

[captainham]

You ARE reclaiming the VAT - the whole point about the FRS scheme is that you pay over less than 20% to HMRC because there is an effective recovery rate in there. So if your hotel bill costs £100 plus £20 VAT then you should be billing your client / agency £100 plus £20 VAT.

You DO recover the £20 you have spent on the hotel through your VAT return, its just by virtue of paying over less than 20% of VAT on sales to them.

Thanks for the clarification, but for the last time, I'm not quibbling about the specifics of the VAT treatment here people!

I'm talking about the bit in bold...there is no should, no single rule that applies in all cases and for all contracts. There is whatever rule applies in your commercial agreement with the agency, which may or may not be net or gross of VAT from the original expense that was incurred.

The OP sounds like he's net, whereas I'm gross (in many ways). There we go

[malvolio]

Thanks for the clarification, but for the last time, I'm not quibbling about the specifics of the VAT treatment here people!

I'm talking about the bit in bold...there is no should, no single rule that applies in all cases and for all contracts. There is whatever rule applies in your commercial agreement with the agency, which may or may not be net or gross of VAT from the original expense that was incurred.

The OP sounds like he's net, whereas I'm gross (in many ways). There we go

You're not listening. For you to claim net, you have to reduce your valid invoiced expenditure by 20% (or whatever the VAT rate ratio is) for no reason other than you have agreed to do so. You may be happy with that arrangement, last time someone tried it with me I got the client to pick up the bills directly.

The VAT is not part of the equation at all. If you're happy, you carry on. But please don't claim what you are doing is right.

[lithium147]

If you are in IT, and you have just started your company, you will find you FRS VAT rate will be 13.5%.
This is because there is a 1% discount for the first year.
Here's a good article:
Flat Rate VAT Scheme Guide (FRS) - Accountants UK - SJD Accountancy

Does anyone roll their company after the first year to keep on the discounted rate? Seems like its not worth the effort to me. 1% of 100K = £1000 ... mmm???

[captainham]

You're not listening. For you to claim net, you have to reduce your valid invoiced expenditure by 20% (or whatever the VAT rate ratio is) for no reason other than you have agreed to do so. You may be happy with that arrangement, last time someone tried it with me I got the client to pick up the bills directly.

The VAT is not part of the equation at all. If you're happy, you carry on. But please don't claim what you are doing is right.

I'm amused that we're in agreement and yet we still seem to be in disagreement. I expect a wormhole to open shortly and destroy the universe. Or something.

I agree with everything you have just said. I'm not claiming that anything is right, in fact I am stating that there is no 'right way'...there are just degrees of how this is handled depending on your contract.

As I have mentioned several times previously, this is not how I am currently operating. Whatever amount I pay for an expense (including VAT if VAT is applicable), I charge this back to the client plus 20% VAT on top.

Again, as I have mentioned several times previously, some people have contracts that say they must recharge expenses at the net rate, then add their 20% VAT on top. It's not what I would prefer to do, but I know some people do have this in their contracts.

For the final time, I am not saying anything is right or wrong...merely to ensure that when negotiating the contract, you try to include the fact you can reclaim expenses in full plus your own VAT on top. This is the cleanest solution but is not available to all depending on how negotiations go. One of the largest SAP agencies, for example, forces all their contractors to charge the net rate, with the contractor's VAT on top of that of course.


You can choose to argue once more with me agreeing with you if you wish, as I am done here anyway.

[captainham]

Does anyone roll their company after the first year to keep on the discounted rate? Seems like its not worth the effort to me. 1% of 100K = £1000 ... mmm???

Ok I lied, this is actually my last post.

Don't be so ridiculous. Another Lithium147 pearl of wisdom