Ltd Co Expenses VAT query with agency

[diesel]

I am a Ltd company of Flat rate vat scheme.
As I need to start travel for my client to meeting etc., I told agency expect all my expenses to be charged plus VAT.

This is their reply:
Must provide VAT receipt if VAT is applicable

If a limited company contractor is VAT registered, we require proof of all VAT receipts for vattable items. This is because we have to pay NET + VAT. Due to the system we have to deduct the VAT from the original expense, pay the NET then we add the VAT back on, if we did not process this way we could potentially pay VAT twice.


In regards to the NET +VAT this is a agency policy, we are unable to pay VAT on VAT as we would be at a loss E.G. If Accomodation was £100.00 inc VAT we would receive a invoice showing: NET: £83.33 + VAT: £16.67= £100.00. If we were to pay £100.00 + additional VAT we would be reimbursing you £116.67 instead of the amount you originally paid: £100.00.

If you are claiming for non-vattable items then this is not an issue as we pay the original expense + VAT E.G:

If your Taxi Fare cost £6.00 and they were not VAT registered, we would pay NET: £6.00 + VAT: £1.00, this therefore means we would reimburse you £7.00 instead of £6.00 which is the original amount you paid.
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I tried telling them of this HMRC link

HM Revenue & Customs: Costs passed on to clients - disbursements - and VAT
but they seemed to disagree as above. Last client I charged all my expenses taxis, tea, food etc plus VAT.

[SueEllen]

Agents are not accountants or lawyers so don't expect them to understand they are only paying VAT once - which is on your invoice.

You can either agree to it or ensure that the only expenses you claim aren't VAT able.

[diesel]

You can either agree to it or ensure that the only expenses you claim aren't VAT able.

thanks for reply
I do I do that?
as I pay VAT on all my turnover each quarter including VAT element from expenses.
so if incur a £100 hotel inc VAT would charge £120 on invoice. Then I would pay flat rate VAT from the £120.
Would do the same even if it was a £100 taxi bill (without VAT receipt)

[Old Greg]

thanks for reply
I do I do that?
as I pay VAT on all my turnover each quarter including VAT element from expenses.
so if incur a £100 hotel inc VAT would charge £120 on invoice. Then I would pay flat rate VAT from the £120.
Would do the same even if it was a £100 taxi bill (without VAT receipt)

I have worked with a client who was effectively paying the VAT twice on a VAT-able service because MyCo was claiming the full expense and then adding VAT to the invoice.. They then switched to all hotel rooms being booked through the corporate system and paid for directly by the company.

[diesel]

I have worked with a client who was effectively paying the VAT twice on a VAT-able service because MyCo was claiming the full expense and then adding VAT to the invoice.. They then switched to all hotel rooms being booked through the corporate system and paid for directly by the company.

I don't think this client will do that but even then does not ensure they are working to HMRC rules, which I don't think they understand for expenses. welcome any advice on this, otherwise I will be out of pocket as I will have to pay VAT on anything I receive.

[Ticktock]

The agency who found my last few gigs have something in the contract along the lines of "VAT will be added to all expenses claimed". I.e. if I have a hotel room at £100, a £20 meal and a £10 taxi then my invoice will be for £156.

[SueEllen]

I don't think this client will do that but even then does not ensure they are working to HMRC rules, which I don't think they understand for expenses. welcome any advice on this, otherwise I will be out of pocket as I will have to pay VAT on anything I receive.

Have you tried to get the client do to that?

It would probably be less effort and more cost effective for you, then spending months trying to get the client or agency to do it properly.

There have been other threads on here in the past where the contractor has been out of pocket even though he has shown the agency or client how expenses should be claimed, and that includes arguing with someone who is supposedly the finance director.

You probably could avoid the VAT element on food with some effort and transport costs are generally VAT exempt.

You could simply point out to the client the advantages of them booking the rooms i.e. controlling costs.

[Contreras]

I am a Ltd company of Flat rate vat scheme.
As I need to start travel for my client to meeting etc., I told agency expect all my expenses to be charged plus VAT.

This is their reply:
Must provide VAT receipt if VAT is applicable

If a limited company contractor is VAT registered, we require proof of all VAT receipts for vattable items. This is because we have to pay NET + VAT. Due to the system we have to deduct the VAT from the original expense, pay the NET then we add the VAT back on, if we did not process this way we could potentially pay VAT twice.


In regards to the NET +VAT this is a agency policy, we are unable to pay VAT on VAT as we would be at a loss E.G. If Accomodation was £100.00 inc VAT we would receive a invoice showing: NET: £83.33 + VAT: £16.67= £100.00. If we were to pay £100.00 + additional VAT we would be reimbursing you £116.67 instead of the amount you originally paid: £100.00.

If you are claiming for non-vattable items then this is not an issue as we pay the original expense + VAT E.G:

If your Taxi Fare cost £6.00 and they were not VAT registered, we would pay NET: £6.00 + VAT: £1.00, this therefore means we would reimburse you £7.00 instead of £6.00 which is the original amount you paid.
====================
I tried telling them of this HMRC link

HM Revenue & Customs: Costs passed on to clients - disbursements - and VAT
but they seemed to disagree as above. Last client I charged all my expenses taxis, tea, food etc plus VAT.

What a load of bull tulip. There is no such thing as VAT on VAT.

You charge whatever you like (well, subject to the agreed contract) and then add VAT on top.

If the Taxi fare cost £6 - whether or not the Taxi Co. are VAT registered - then as far as HMRC are concerned you can charge £2 + VAT, £5 + VAT, or £10 + VAT, you could charge the original £6 + "20% admin fee" + VAT, HMRC don't care so long as you add the VAT. Any profit or loss would be subject to Corporation Tax.

So what does the contract say about recharging expenses? If the policy they are quoting to you is basically re-iterating what it already says in the contract then that's what you're stuck with. I wouldn't say it puts you out of pocket - but rather it is eating into your profit margin, that's business. If the gig is no longer profitable for you then perhaps negotiating on the rate would be easier than battling on a concept they clearly don't understand.

Btw, just to be clear, since you posted the HMRC link - your expenses are most definitely NOT disbursements.

[LisaContractorUmbrella]

The recruitment agency are not accounting for VAT correctly and are certainly not paying it twice. Sales invoices are raised with VAT and the VAT element is payable to HMRC; purchase ledger and cashbook invoices will be received and may or may not have VAT added - this amount is deducted from the amount payable. Therefore, in this instance, you have incurred a cost of, say, £120 which the agency has, according to the contract, agreed to reimburse in full - the fact that £20 of that cost is VAT is irrelevant. You are then required to add the expense to your sales ledger invoice, the total of which is subject to VAT - this element will then be claimed against the agency's VAT payment to HMRC when they submit their VAT return.

[DirtyDog]

[I]In regards to the NET +VAT this is a agency policy, we are unable to pay VAT on VAT as we would be at a loss E.G. If Accomodation was £100.00 inc VAT we would receive a invoice showing: NET: £83.33 + VAT: £16.67= £100.00. If we were to pay £100.00 + additional VAT we would be reimbursing you £116.67 instead of the amount you originally paid: £100.00.

If you don't do it the right way, then you would be at a loss. eg. if accommodation was £100 inc VAT, if you invoice for £83.33 + VAT and hand the VAT over to the VAT man, then you can only reimburse £83.33 to the employee without making a loss.

Idiots