VAT on expenses

[TheCyclingProgrammer]

Many agencies really struggle with this. They seem incapable of following the hmrc guidelines on disbursements and recharges. In the past I have even taken the hmrc pdf and edited/highlighted the bits that apply. Result? Complete ignorance. I once had a major falling out with an agency over this as they cost me hundreds of pounds in vat over expenses. All they can see is "vat on top of vat" and refuse to pay. A situation made worse by self invoicing agencies. Be warned.

HMRC rules don't come in to it. Unless you're dealing with disbursements, recharges are simply an addition to your service and therefore entirely a matter of agreement between you and the client (or agency).

I can see why a client (agency) may question recharging expenses at the VAT inclusive price and then adding VAT on top.

From their point of view they would wonder why you aren't reclaiming the VAT on your VAT return and simply passing on the net cost. They may well say that the fact we are on the FRS and unable to reclaim the VAT is our problem, not theirs.

Anyway, it's an often repeated fallacy on here that if you're on the FRS and only recharging the net + VAT that you're losing out. You shouldn't be losing out because your VAT costs should be more than covered by your flat rate surplus (the difference between the VAT you charge and your flat rate percentage). If they aren't you should come off the FRS.

You say you've lost hundreds of pounds in VAT - what did you think the flat rate surplus was for? Many people on here seem to think it's free money. There's a reason why the percentage varies for different industries. It's there to cover your VAT costs in a simplified way - anything in addition to this is a bonus.

An IT contractor with a 14.5% flat rate would make £1300 flat rate surplus on a £50k turnover. You'd have to incur VATable expenses of £6500 before you exceeded that.

[Fred Bloggs]

Many agencies really struggle with this. They seem incapable of following the hmrc guidelines on disbursements and recharges. In the past I have even taken the hmrc pdf and edited/highlighted the bits that apply. Result? Complete ignorance. I once had a major falling out with an agency over this as they cost me hundreds of pounds in vat over expenses. All they can see is "vat on top of vat" and refuse to pay. A situation made worse by self invoicing agencies. Be warned.

[SimonMac]

Newbie here, Ltd Company, VAT registered. Recently had to work late hours and took cab home. Cab cost had no VAT added, and I paid it.

I've invoiced this back to my client, but added VAT. Is this correct, found guidance online which implied yes. What have others done?

If the Taxi driver bills less than £85k a year they do not have to register for VAT, so that could be why no VAT appeared on the receipt.

As others have mentioned submit the invoice with amount + VAT (assuming you are VAT registered) if you are on FRS you get a 5.5% kick back from Hector for being an unpaid tax collector.

[malvolio]

Errrmm....... Yeh, Thanks a lot Mal, I have only been doing this around 16 years .

I was actually just pointing out that not all clients can claim the VAT back, that was all.

You know that, I know that. I was talking to the OP, who probably doesn't.

Come to that, major companies who can't reclaim VAT don't lose out either - or do you think they don't simply pass the 20% on to their consumers...?

[Maslins]

Surely vat should be added irrespective of whether you are on the flat rate scheme

This.

It's an area that does seem to cause a lot of confusion. Basically HMRC's attitude is that your company doesn't sell taxi journeys or train tickets, it sells your skills which are VATable. Therefore even if you bump up your invoice to a client because you incurred some costs which potentially didn't all have VAT on them, doesn't matter, you still charge VAT on the whole invoice.

I imagine part of the reason being that if not, as an example firms like us with a lot of clients on the flat rate scheme might attempt to argue that a lot of our fee was recharging for some of our non-VATable costs like insurance/travel (at overly inflated prices), so we could avoid charging VAT on large chunks of our sales to help clients who couldn't reclaim it.

[MrMarkyMark]

Not your problem... You have to add VAT to your invoice.

Errrmm....... Yeh, Thanks a lot Mal, I have only been doing this around 16 years .

I was actually just pointing out that not all clients can claim the VAT back, that was all.

[malvolio]

Not the case if they, the client, are in finance, or the insurance business to take a couple of examples?

Not your problem... You have to add VAT to your invoice.

However, it's up to you what you charge your client, so as sal says above, you can adjust your charges to cover the additional VAT cost if the option is not being paid at all.

[sal]

As already stated by others - if you are VAT registered you are obligated by law to add VAT in your invoice.

The caveat here is to align the amount with the Client. Some of them are refusing to pay more than what the original receipt shows, so you will have to recalculate your invoice to X including VAT, essentially taking a hit. But such is the cost of doing business sometimes.

[MrMarkyMark]

Agreed - you are invoicing for yourCo's service and the expenses incurred in providing it. So if you're registered for VAT, VAT must be added.

It won't 'cost' your client any extra as they will reclaim the VAT.

Not the case if they, the client, are in finance, or the insurance business to take a couple of examples?

[mudskipper]

Surely vat should be added irrespective of whether you are on the flat rate scheme

Agreed - you are invoicing for yourCo's service and the expenses incurred in providing it. So if you're registered for VAT, VAT must be added.

It won't 'cost' your client any extra as they will reclaim the VAT.

[fidot]

Surely vat should be added irrespective of whether you are on the flat rate scheme

[Michael at BI Accountancy]

Hi,

Presuming you are on the flat rate scheme then yes, that would be correct to add VAT on top of the cost.

Doing this ensures that you are not left out of pocket when it comes to the VAT return.

You should really look at any expense incurred as part of the service you are providing.

[flash1969]

Newbie here, Ltd Company, VAT registered. Recently had to work late hours and took cab home. Cab cost had no VAT added, and I paid it.

I've invoiced this back to my client, but added VAT. Is this correct, found guidance online which implied yes. What have others done?