Consulting firm refusing to pay invoice

[Old Greg]

Yes you are right.

It really isn't the money, its just the fact that I have sent several emails from my accountant to this person that flat out tells her she is wrong, but she arrogantly prefers to trust her own limited accounting knowledge over that.

I have sent them revised invoices, and told them I don't want anything to do with them in the future. It is a real shame, as the other two directors are really good, and I had a good relationship with them.

Chalk this one up to experience I think

Let other go. Stick some frozen fish fingers in his PC casing, heating duct, whatever and move on.

[kempc23]

Its not just £20 though is it? And like I've said, its not the money, its the principle. And you don't think it is valid to get a bit stressed when someone who owes you £10k refuses to pay you what they owe you, then blackmails you into ignoring the advice of your accountant?

[SueEllen]

I don't think my accountant would talk to their accountant, surely that isn't part of the service?

Did you ask nicely?

Yes you may have had to pay for it but people are more likely to do what you want when they get the message verbally than via email.

And which part are you saying is stupid? Sending them revised invoices or telling them I don't want to work with them again?

Saying you don't want to work with them again for £20.

[kempc23]

Below is the reply from Craig @ in touch, who has been great throughout, as per usual. Consulting Co seems to think I should be invoicing them differently just because they recharge their expenses at Net + VAT, even though there is nothing in our contract that states this.


I can confirm the cost RECHARGED to Consulting Co must have VAT at 20% applied to it. If you are recharging a cost of £100, you must apply 20% VAT to the £100 so that your company collects £120 from Consulting Co. The £100 cost to be recharged IS the "gross" amount. Please do not misinterpret gross in this instance to mean "Net + VAT". If you read it this way, you would think that you are apply VAT on top of VAT. In reality, what you are technically doing is apply VAT to an "Expense Recharged" and NOT applying VAT to "Net + VAT" amounts. Some contracts will state whether the expenses are only rechargeable net of VAT and other will accept recharging of the gross expense or 50% of what is incurred etc. You should check your contract terms for this. Either way, you should apply VAT at 20% to the amount.

Please find HMRC's guidance link here HM Revenue & Customs: Costs passed on to clients - disbursements - and VAT which states:

"Any costs that your business incurs itself in the course of supplying goods or services to customers are not disbursements for VAT purposes. It's you, and not your customer, who purchases the goods or services, which are supplied to and used by your business.
It's up to you whether or not you itemise costs like these on your invoices. If you do show them separately when you invoice your customers then they're known as 'recharges', and not disbursements, for VAT. You'll have to charge VAT on them whether you paid any VAT or not.
Some examples of costs that could be recharges but are not disbursements include:
An airline ticket that you buy to visit a client or to travel to a job. If you recharge the cost to your client you must charge VAT because the flight was for you, not for the client.
Postage costs you incur when you send letters to your customers. These are normal business costs and you must add VAT if you recharge them.
A bank transfer fee you might incur when transferring money from your business account to a client's own account. Even though the bank's fee is exempt from VAT, if you recharge the fee you must charge VAT. This is because it was for a service provided to your business and not to your customer."

Just to confirm, the correct treatment for Contractor Co is that you must apply 20% VAT to the Expenses Recharged to Consulting Co. Equally, Consulting Co must invoice their expenses to Client Co and apply VAT at 20% too. Their accountant should be able to confirm this in writing to them that that is how Consulting Co invoice their clients i.e. Client Co.

If you are in any doubt, you can call HMRC VAT helpline on 0845 010 9000 who will confirm this.

Finally, there is an interesting thread on CUK for your interest.

[kempc23]

Did you ask nicely?

Yes you may have had to pay for it but people are more likely to do what you want when they get the message verbally than via email.


Saying you don't want to work with them again for £20.

I just doubted an accountant would want to get directly involved like that. So would you work for a company again that blackmailed you into doing something you didn't agree with? This time it is just small money involved. I dont want to do business with people with such low integrity. What is so hard to understand about that?

[BlasterBates]

I think you´re both right it could be done either way.

My understanding is you can offset VAT paid from VAT received.

Right you pay 80 to the hotel plus 2o VAT

You charge the company 80 plus 20 VAT, the VAT paid offsets the VAT receives, means you´re not out of pocket, i.e. you have nothing to pay to HMRC.

If I am correct in my understanding I would say the Operations Director is quite right.

[kempc23]

Well actually there are two people out of pocket in that scenario. HMRC are down as they have less VAT. I am also out of pocket, as I am on the flat rate VAT scheme and cannot reclaim input VAT.

In scenario one, I spend £100 + £20, I recharge £120 + 20% (£144). HMRC gets back £20.88, I get back £123.12. If I wasnt on flat rate VAT, HMRC get £4.
In scenario two, I spend £100 + £20, I recharge £120, HMRC gets £17.40. I get back £102.60. If I wasn't on flat rate VAT, HMRC get nothing.

I agree it CAN be done either way, but the contract would need to expressly stipulate that they pay expenses on net + VAT only. But even then, I don't know whether HMRC would agree, as they would still be down.

The fact that they are in turn recharging these expenses is neither here nor there. They are stiffing HMRC here too.

[SueEllen]

I just doubted an accountant would want to get directly involved like that.

If you don't ask you definitely don't get.

The email exchange probably put her back up so whatever you asked for her response would be no.

So would you work for a company again that blackmailed you into doing something you didn't agree with?

Been there but it ended up more serious.

This time it is just small money involved.

BlasterBates post another strategy.

I dont want to do business with people with such low integrity. What is so hard to understand about that?

One person had as you called it "low integrity" you said the other directors were fine.

Do these other directors know that their Operations Manager is useless with financial issues?

[kempc23]

Blasterbates "strategy" involves ignoring the advice of my accountant, losing money, paying less VAT than is due to HMRC and invoicing them in the way the Ops director wanted me to do, which is wrong.


I think one of the other Directors is going out with her, which complicates matters

[SueEllen]

I think one of the other Directors is going out with her, which complicates matters

You are right to stay away from them.

Though it would have been interesting to work or keep in touch with them to find out what happens in 10 years time.