Ltd Co Expenses VAT query with agency

[TheCyclingProgrammer]

This seems to come up on here a lot. It's amazing how many agencies/clients don't seem to understand this and the VAT on VAT thing is obviously rubbish.

The key is to see it as two supplies...one from the vendor to you which may or may not have had a VAT element, and one for you to the agent, which will ALWAYS have VAT unless it counts as a disbursement.

Unfortunately as has been pointed out, HMRC only care that you charge VAT in your services, including any rebilled expense charges. How much you rebill an expense for (net) is no concern of theirs.

IMO if your contract states that expenses can be recharged "in full" then that should be the gross amount.

Of course, if you're on the standard VAT scheme then you can rebill the net amount without losing out as the whole chain is VAT neutral but if you are in the FRS only re-billing the net cost would mean you potentially lose out (your flat rate surplus should normally cover irrecoverable input VAT up to a limit though).

[northernladuk]

This seems to come up on here a lot. It's amazing how many agencies/clients don't seem to understand this and the VAT on VAT thing is obviously rubbish.

To be fair there are a lot of contractors that don't and they own companies and are responsible for it

[TheCyclingProgrammer]

Oh and as for the requirement for a VAT receipt, whilst the agency is certainly entitled to receipts to validate rebilled expenses, the VAT on the original supply is nothing to do with them. If you're on the FRS I'm not sure there's any requirement for you to have a full VAT receipt either as you won't be reclaiming the VAT.

[TheCyclingProgrammer]

To be fair there are a lot of contractors that don't and they own companies and are responsible for it

Fair point.

[Old Greg]

Oh and as for the requirement for a VAT receipt, whilst the agency is certainly entitled to receipts to validate rebilled expenses, the VAT on the original supply is nothing to do with them. If you're on the FRS I'm not sure there's any requirement for you to have a full VAT receipt either as you won't be reclaiming the VAT.

I see the client's perspective. If they pay for a hote lroom it's £100+VAT = £120. If MyCo pays it's £100+VAT+VAT =£144. It's perfectly reasonable for them to want MyCo only to invoice them for the VAT once. MyCo should be claiming that VAT back, or it MyCo prefers to be on the FRS because it's more profitable then that is MyCo's business. Of course, the client should have this in the contract with MyCo.

[DirtyDog]

I see the client's perspective. If they pay for a hote lroom it's £100+VAT = £120. If MyCo pays it's £100+VAT+VAT =£144. It's perfectly reasonable for them to want MyCo only to invoice them for the VAT once. MyCo should be claiming that VAT back, or it MyCo prefers to be on the FRS because it's more profitable then that is MyCo's business. Of course, the client should have this in the contract with MyCo.

That only works if the company pays directly, not the employee who is then reimbursed. In that situation, the employee pays £120 for the hotel room. Company charges £120 to the client, but has to pay £20 over to HMRC.

Employee either gets £100 from the company, or company takes the £20 hit.

[SueEllen]

I see the client's perspective. If they pay for a hote lroom it's £100+VAT = £120. If MyCo pays it's £100+VAT+VAT =£144. It's perfectly reasonable for them to want MyCo only to invoice them for the VAT once. MyCo should be claiming that VAT back, or it MyCo prefers to be on the FRS because it's more profitable then that is MyCo's business. Of course, the client should have this in the contract with MyCo.

If the client wants a cheaper hotel room they need to cut out the middle man - the contractor - and book it themselves.

[diesel]

thanks everyone for replies...I have had this issue with last client but when I quoted the HMRC link they back down and said they will comply with whatever.
This agency refuses to back down stating end client policy (as stated in contract)....but another contractor working via different agency gets all expenses charged plus VAT.
I asked my accountant who said its because the agency don't use FRS that is why they don't expect to charge in everything plus VAT
e.g.
You pay £50 for fuel. This shows up as £50 as an expense on your accounts.
You then invoice for net plus VAT – ie £41.67 plus VAT of £8.33. Total invoice cost of £50.

This shows up in your accounts as £50 gross income.
When I do the VAT return, I offset the £50 expense against the £50 income ie zero income to declare towards VAT, so it costs you nothing.

It also shows up as zero profit or loss in your accounts.

Agency want to meet face to face to discuss this issue, but I know they wont change their rule, so cant see what that will achieve.

[LisaContractorUmbrella]

I see the client's perspective. If they pay for a hote lroom it's £100+VAT = £120. If MyCo pays it's £100+VAT+VAT =£144. It's perfectly reasonable for them to want MyCo only to invoice them for the VAT once. MyCo should be claiming that VAT back, or it MyCo prefers to be on the FRS because it's more profitable then that is MyCo's business. Of course, the client should have this in the contract with MyCo.

But the agency won't pay VAT twice - they are reimbursing you the cost of the hotel, which they have agreed to do; the VAT on your invoice is the correct application of the tax and is reclaimable by them against their output tax i.e. what's payable by them on their sales invoices. If they were to pay your expense less the VAT you would lose that money as the VAT on your total invoice is not yours - it's payable by you to HMRC.

[DirtyDog]

Agency want to meet face to face to discuss this issue, but I know they wont change their rule, so cant see what that will achieve.

Me neither. You are right and they are wrong, but getting them to understand that is going to be nigh on impossible.

Tell them that you have spoken to HMRC about it via their helpline, and the only thing that you can suggest is that the client arranges everything themselves, or you don't do anything which incurs expenses.