expense

[TheCyclingProgrammer]

The problem with the bit in bold is that if you get a VAT audit, they'll look at the invoices and wonder why you didn't charge VAT properly. That then will get them into suspicious mode "if he didn't want to do that properly, what else has he missed?"

Why would you not be charging VAT properly?

You incur an expense of £100 + VAT. You would like to re-bill the gross (£120 + VAT) but agency don't like this, so you re-bill the net instead (£100 + VAT) for an easy life.

Both are correct; the only thing that is different is your service charge - you're charging a bit less than you'd like. HMRC only care that you charge VAT on your service, regardless of the underlying charge.

All HMRC are going to see on your invoice is either:

Expenses    £100 
VAT               £20

Or:

Expenses    £120
VAT              £24

Both are both valid VAT invoices.

[craig1]

Why would you not be charging VAT properly?

You incur an expense of £100 + VAT. You would like to re-bill the gross (£120 + VAT) but agency don't like this, so you re-bill the net instead (£100 + VAT) for an easy life.

Both are correct; the only thing that is different is your service charge - you're charging a bit less than you'd like. HMRC only care that you charge VAT on your service, regardless of the underlying charge.

All HMRC are going to see on your invoice is either:

Expenses    £100 
VAT               £20

Or:

Expenses    £120
VAT              £24

Both are both valid VAT invoices.

It might be me being completely thick or something to do with a nasty head cold frying my brain but why would you ever want to undercharge by that £20? Again, maybe it's me being just very tight with money that's due to me!

[TheCyclingProgrammer]

why would you ever want to undercharge by that £20? Again, maybe it's me being just very tight with money that's due to me!

Well I wouldn't, not by choice. But I also wouldn't want a long drawn out argument with an agent for the sake of a few quid.

Like I said before, if you're on the standard VAT scheme then you don't lose out at all because you can reclaim the original input VAT on your VAT return, so the whole thing us neutral.

If you're in the flat rate scheme it might initially seem like you are losing out as you can't recoup the VAT on your VAT return and you aren't covering the cost on your invoice BUT, don't forget that the whole point of the flat rate percentage is that it provides you with surplus income that is intended to cover your input VAT. As the expenses directly relate to your service then for every little bit of input VAT you don't recover, you're probably making a bigger surplus on your overall billings so you are unlikely to be making a loss.

[TheCyclingProgrammer]

Here's an example calculation re: the FRS scenario that I posted last time this came up:

http://forums.contractoruk.com/accou...ml#post1842296

[krssubbu]

Thanks all for your opinion on this.

Actually I think I did this some time ago and agency said I cant VAT for the expense.
I am not too much worried about the VAT (loss I will make out of this). I am just worried if it will be a problem in terms of hmrc ir35 view ?
Can someone please confirm if this will be a problem ?

Thanks

[TheCyclingProgrammer]

Thanks all for your opinion on this.

Actually I think I did this some time ago and agency said I cant VAT for the expense.
I am not too much worried about the VAT (loss I will make out of this). I am just worried if it will be a problem in terms of hmrc ir35 view ?
Can someone please confirm if this will be a problem ?

Thanks

This doesn't really have anything to do with IR35 but you should be invoicing for your expenses (or agency should be self-billing) and as your expenses are part of your service, you MUST be charging VAT on them, regardless of what underlying charge is. If you mean the agent won't let you charge VAT on top of the original VAT-inclusive cost, then so be it, but you must have a record showing the payment received for expenses and the relevant amount of VAT for your records.

[krssubbu]

This doesn't really have anything to do with IR35 but you should be invoicing for your expenses (or agency should be self-billing) and as your expenses are part of your service, you MUST be charging VAT on them, regardless of what underlying charge is. If you mean the agent won't let you charge VAT on top of the original VAT-inclusive cost, then so be it, but you must have a record showing the payment received for expenses and the relevant amount of VAT for your records.

so are you saying that I should be creating a separate invoice for this or can I just include this x amount in the same invoice and mention "Expense" ?

If the agency wont me VAT then what should I do ?

[TheCyclingProgrammer]

so are you saying that I should be creating a separate invoice for this or can I just include this x amount in the same invoice and mention "Expense" ?

You can put it on a separate invoice or the same invoice as a separate line. It doesn't really matter. I'd put it all on the same invoice so it's clear what period of work the expense charges relate to.

If the agency wont me VAT then what should I do ?

Tell them that as a VAT-registered trader you have to charge VAT on your service and if they refuse to pay the VAT element, report them to HMRC.

I suspect however that the agency knows you have to charge VAT and you are misinterpreting what they've said to you. They have probably told you not to re-bill the original VAT-inclusive cost, just the VAT-exclusive cost, before adding VAT. I'd be very surprised if they've told you not to add VAT to your expenses charge at all.

[aoxomoxoa]

I'd be very surprised if they've told you not to add VAT to your expenses charge at all.

Unless they mistakenly think it's a disbursement rather than a straightforward expense, although most agents wouldn't know a disbursement if it bit them on the bollox.

[TheCyclingProgrammer]

Unless they mistakenly think it's a disbursement rather than a straightforward expense, although most agents wouldn't know a disbursement if it bit them on the bollox.

That would be a surprise, but like you said...