New contract: VAT expenses question

[infosec]

Reading through a new contract and it contains the following:

"Expenses incurred in the performance of the Assignment are to be invoiced by the Consultancy separately net of any input VAT and supported by a fully completed claim sheet, signed by an authorised signatory of the Client, and VAT receipts."

My Ltd company is not VAT registered - what does "net of any VAT input" mean? I can't pass on the VAT part of an expense?

Thanks in advance!

[northernladuk]

Why aren't you VAT registered? Hasn't your accountant explained the benefits of being on the FRS? 3 or 4% profit from it and 1% more in the first year. Give him a bell and get him to explain it all.

Must be a good reason for not being registered if you have done 5 gigs before this one..

http://forums.contractoruk.com/busin...ml#post1857842

[northernladuk]

Would you adam and eve it...

There are pages explaining this...

IT contractor expenses: Charging expenses back to your client :: Contractor UK

https://www.nixonwilliams.com/images...20Expenses.pdf

In't t'internet wonderful.

[Scruff]

Another one not cut out to be a Contractor?

[TheCyclingProgrammer]

Reading through a new contract and it contains the following:

"Expenses incurred in the performance of the Assignment are to be invoiced by the Consultancy separately net of any input VAT and supported by a fully completed claim sheet, signed by an authorised signatory of the Client, and VAT receipts."

My Ltd company is not VAT registered - what does "net of any VAT input" mean? I can't pass on the VAT part of an expense?

Thanks in advance!

Basically, your contract states that any re-billed expenses (not "expense claims" as thats what you do to YourCo), should be billed net of any VAT, rather than gross.

In short, it means not only can you not recover the original input VAT, as you're not VAT registered on the standard VAT scheme, but you can't recover the cost of the input VAT by re-billing it to the client either. You will be out of pocket each time you incur an expense with VAT on it as you have no way of clawing it back.

IMO it's bulltulip; if your client says you can re-bill your expenses, you should be able to re-bill what it's cost you, but if that's what in the contract and you can't negotiate, that's what you have to bill them. If you search on here, you'll find that agents often don't understand this at all.

But as NLUK says, you should probably get yourself VAT registered on the flat-rate scheme as for businesses with low expenses (and therefore negligible input VAT), there's a tidy profit to be made.

Note: if you were on the FRS, you would be in a similar position as you'd be unable to reclaim the input VAT on the expense, or re-bill it to the client either, but you'd still be better off as your FRS surplus covers your input VAT (and still normally results in an overall profit). Another good reason to get on the FRS then...

[infosec]

Would you adam and eve it...

There are pages explaining this...

IT contractor expenses: Charging expenses back to your client :: Contractor UK

https://www.nixonwilliams.com/images...20Expenses.pdf

In't t'internet wonderful.

I had to understand what the contract cause was saying before I could search for it!

[infosec]

Why aren't you VAT registered? Hasn't your accountant explained the benefits of being on the FRS? 3 or 4% profit from it and 1% more in the first year.
http://forums.contractoruk.com/busin...ml#post1857842

Was on it previously with my old Ltd Company - few good personal reasons not to be up until now with the new one.... simplicity being one of them....

[infosec]

but if that's what in the contract and you can't negotiate, that's what you have to bill them.

Haven't signed the contract yet. Amazingly I'm reading it with a fine tooth comb and understanding each clause before signing it (and awaiting ir35 review feedback)....

[infosec]

Another one not cut out to be a Contractor?

Huh! Bet I've been at it longer than you! :ladybugs:

Just not been in this situation before - not vat registered and this contract clause.

[captainham]

Note: if you were on the FRS, you would be in a similar position as you'd be unable to reclaim the input VAT on the expense, or re-bill it to the client either, but you'd still be better off as your FRS surplus covers your input VAT (and still normally results in an overall profit). Another good reason to get on the FRS then...

Being VAT registered, FRS or otherwise, does not affect your ability to charge your client whatever you want (within the confines of the contract, of course).

If this were my contract I was reviewing (and not signed yet), I'd be looking to renegotiate so that I recharge the full expense (including VAT), then of course with 'my own' VAT on top of that. The business rationale for that is that I'm on FRS therefore charging less than the full amount (with VAT) means I'd be losing out; of course there would be no need to explain it in that much detail to the agency as ultimately it's none of their business, it would be a decision taken by the director of a company which is in the best interests of said company.