New contract: VAT expenses question

[captainham]

I see where you are coming from but that's not strictly true. You aren't losing out in real terms if you rebill net of VAT, because the FRS surplus is designed to cover your irrecoverable input VAT in situations like this.

I agree to a point...but let's not forget that FRS is only designed for those businesses whose purchases and rebilling amounts to a small % of their sales revenue. Of course there's a tipping point where FRS starts to cost you...it might be ok to stick with this for a short contract (to avoid hassle of leaving FRS then waiting a year before you can rejoin), but any longer term contract that could end up costing you, it's worth considering switching to traditional VAT.

[tractor]

..

Not sure what disbursements have got to do with this. The contract isn't asking for rebilled expenses to be treated as disbursements, it's just asking for them to be rebilled at net cost, so when you add your own VAT on top, they end up paying the same gross cost that you did.

Completely legitimate and nothing to do with VAT regulations. It's no different to them asking for expenses to be rebilled at fixed rates or with a discount.

Disbursements is the HMRC heading that covers some of the recharging issues IF you are VAT registered and the notice even uses recharged expenses as an example. It is relevant. Disregard it and it WILL come up for discussion in a VAT inspection.

[TheCyclingProgrammer]

Disbursements is the HMRC heading that covers some of the recharging issues IF you are VAT registered and the notice even uses recharged expenses as an example. It is relevant. Disregard it and it WILL come up for discussion in a VAT inspection.

I know what disbursements are and what things aren't, however there is nothing in VAT legislation that says that non-disbursements have to be re-charged at gross - you can re-charge them at whatever net price you like (or the client agrees to) - gross, net of the original input VAT, with a 20% discount or a 50% markup, so long as you charge VAT on top of that figure. Likewise, if the original expense had no VAT (exempt/zero-rated), you still charge VAT on top.

So like I said, disbursements aren't really relevant here. It's clear that the expenses OP are talking about aren't disbursements, so the only point of contention is what net price they are re-billed at. OP wants to bill gross, agency insists net of the original VAT. It's a commercial decision, nothing more.