Flat rate VAT, double taxation and expenses mayhem

[ndoody]

Hi, I've started contracting with a new company and it is agreed a daily rate + reimbursement of all expenses on their various customer sites. There are a lot of different sites to go to, and a lot of expenses are generally incurred.

Normally it's all good, in all my years of contracting I would simply make a report of the total value of all receipts and get these improved. Then I would invoice for the total amount of all receipts, and because I'm obliged to collect VAT I also add VAT on top.

Now with this new company, they want to include the amounts on the receipts without VAT...so they do not get double taxation. My problem here is, I have incurred the cost of say my hotel which is the hotel price + VAT and have paid this...then I can only claim back from the company the cost of the hotel less the VAT, and finally charge VAT to the company. The problem with the VAT charged to the company, is this is nearly all payable to HMRC...less of course the small proportion for being flat rate schemed. In turn, this means that I will generally be out of pocket some 10-15% of what I've had to pay out to the hotel.

I guess, if I was not flat-rate VAT registered then this would work out fine because I could claim relief on the VAT of the expenses and it wouldn't be an issue. So what do people *normally* do in these instances? I've never in the past 8+ years had this be a problem, and was originally guided by a client on how to claim back expenses which was total receipt amount + VAT...

[EternalOptimist]

I don't think I ever claimed expenses. You are going to be paying for accommodation wherever you are.

I normally get a rate that Im happy with, if I am getting stiffed I work less, if I am coasting, then I owe them.
It's swings and roundabouts. Why give yourself all this stress ?

[TheCyclingProgrammer]

It's not double taxation; you aren't selling them a hotel stay, you're selling a service which includes materials snd expenses. The VAT you charge is for your service. I assume they would realise that if you ever have to recharge zero rated services at standard rate.

I feel like this has been discussed a million times on here and I can't really be bothered to explain again in detail. Do a search if you want the long answer.

The short answer is that it's a matter between you and the client whether you recharge your costs at net or gross. Whatever you charge, you add VAT on top.

If you're in the FRS, it's preferrable to recharge at gross cost for the reasons you state but some clients don't like this as they do see it as "double charging" (they can only reclaim your VAT).

But if you recharge at net cost, the small amount you lose should be more than covered by your flat rate VAT surplus - that's what it's there for - to cover your input VAT costs. Any profit you make from the FRS is a bonus. Just make sure you're not making a net loss from the scheme.

Whatever you charge, you're still better off than somebody who can't recharge their costs to the client!

[AMH]

what do you / they mean by double taxation?
VAT is completely separate from TAX

The VAT they pay you, they can offset against their own VAT bill.

Sounds like they are trying to dupe you business income for 20%

[TheCyclingProgrammer]

what do you / they mean by double taxation?
VAT is completely separate from TAX

The VAT they pay you, they can offset against their own VAT bill.

Sounds like they are trying to dupe you business income for 20%

What OPs client means is that they don't want to pay VAT on top of the VAT inclusive costs OP incurred. As far as they are concerned if OP is VAT registered they can reclaim the input VAT on their expense from HMRC and so should only be passing on the net cost (plus VAT).

The fact that OP is on the FRS and therefore the total cost to his business is actually the gross amount isn't really the clients problem.

It's not really any different to the client agreeing to pay some other amount towards expenses, eg a daily flat rate; it deiends entirely on what was agreed contractually.

[AMH]

What OPs client means is that they don't want to pay VAT on top of the VAT inclusive costs OP incurred. As far as they are concerned if OP is VAT registered they can reclaim the input VAT on their expense from HMRC and so should only be passing on the net cost (plus VAT).

The fact that OP is on the FRS and therefore the total cost to his business is actually the gross amount isn't really the clients problem.

It's not really any different to the client agreeing to pay some other amount towards expenses, eg a daily flat rate; it deiends entirely on what was agreed contractually.

Ahh got you.

[jamesbrown]

The key to understanding this is to, first, to separate between what you bill and what may be treated as an expense w/r to tax and, second, that the amount you bill is governed by the contract or prior agreement and not by the nominal cost to YourCo or the tax situation. When you purchase travel to fulfill your contract, you're not selling a train ticket or a hotel stay, you're selling a service. Thus, you may bill anything that is agreed in advance, including an amount that allows you to profit (or not lose, at the very least).

[ndoody]

Double taxation certainly isn't my terminology, that's what the company used towards me. I guess that's why I couldn't find anything when searching for "double taxation", "double tax" / etc using forum search to try and find threads where this was already discussed.

If I understand what you're saying, it's the fact that even though in the case say a hotel for £100 + £20 VAT that I would be -£17.40 out of pocket through the flat rate scheme...this is absorbed through the surplus I make from the flat rate scheme, that returns a proportion of the VAT claimed on my daily rate ("bonus payment")?

I guess that's something for me to figure out, though a lot of travel and the such comes with this company...a significant increase. Any "bonus payment" would be quickly absorbed by costs of being sent to dubai / etc.


I suppose, the only answers I'm actually looking for is what the average person does in these situations...and you've already written that some accept it / and some dont. For me, I've just been stung for the first time by a company who doesn't...and I have to wonder if that makes me better or worse off from where I came from.

Well, thanks for the advice.

[jamesbrown]

average person does in these situations

The point about the FRS is that it's a decision about what is best for YourCo, based on the simplicity and marginal gain on supply versus the costs of not being able to reclaim VAT (except under limited circumstances). However, that's a separate issue from what you bill the client. Why don't you bill the client £120 for the service in your example (or anything else you might decide, as agreed with the client)? Personally, I charge for my time when selling travel to the client, on top of any nominal costs.

[ndoody]

The point about the FRS is that it's a decision about what is best for YourCo, based on the simplicity and marginal gain on supply versus the costs of not being able to reclaim VAT (except under limited circumstances). However, that's a separate issue from what you bill the client. Why don't you bill the client £120 for the service in your example (or anything else you might decide, as agreed with the client)? Personally, I charge for my time when selling travel to the client, on top of any nominal costs.

Well, what I charge is the point...because it's not my choice. Expenses are reimbursable by cost, requiring receipts as proof...with only the option to charge the pre-tax price and add VAT on after which nearly all must go to the hmrc. In an ideal world, I'd just put in an invoice with no VAT added...and make the invoice out for the cost to me, but I see that would b illegal right?