Reply to: The Right Way to Invoice for Expenses

[TheCyclingProgrammer]

I'm just waiting to see if the client is fussy about removing any input VAT before charging them output VAT.

Why wouldn’t you recharge the net cost plus VAT unless you’re seeking to make a profit from your expenses? If you can reclaim the input VAT on your expense then the net cost to you is the amount ex VAT. So that’s what you should recharge if you’re just looking to recover the cost from the client.

Just recharge net plus VAT, give them the receipts to back up the charge and be done with it.

You will recover your costs in full (both personally and as a business) and it will cost the client the same as if they’d paid directly.

There’s no “right” way as such, but if one of my suppliers tried to recharge me the gross instead of the net when we had agreed that expenses would be recharged at cost then I’d tell them to change it.

[TheCyclingProgrammer]

Then I would push them down the VAT route. I have used disbursements before but only for one off expenses (domain registrations etc.). I'm not sure I'd feel comfortable doing it all the time. Surely they can't be that bothered ? They claim in back after all.

Ignore the concept of disbursements. It does not apply.

[TheCyclingProgrammer]

Hard not to overthink it when there's conflicting info everywhere

Well, I put forward some suggestions to the agent last night - I'll see what they come back with. Thanks for your responses.

There is no conflicting info about WHAT you charge. What you recharge is between you and the client. You just charge VAT on top of what you bill unless it’s a disbursement in which case the original charge is passed through as is. Travel costs are not disbursements. It’s that simple.

[Spikeh]

Then I would push them down the VAT route. I have used disbursements before but only for one off expenses (domain registrations etc.). I'm not sure I'd feel comfortable doing it all the time. Surely they can't be that bothered ? They claim in back after all.

Well, disbursements are fine if you're purchasing something on behalf of the client (i.e. you're their agent buying something from one of your suppliers on their behalf) and you're simply passing on the cost to them. The length of time you charge clients via a disbursement model has absolutely no relevance or bearing - a disbursement is a disbursement and it's up to you whether asking the client to purchase the service / product themselves would be more efficient, or prone to errors. I have this exact scenario with one of my clients at the moment; I've recommended a domain name to them - which I desperately need to have confirmed before I can do some of the other work I've got in the pipeline - but they refuse to let me register and manage it on their behalf due to some bad experiences in the past. When they do eventually purchase the domain name, I can guarantee they'll set everything up incorrectly and I'll have to undo their mess - but that's their choice, and they'll be charged for that extra work.

Travel is a business expense (which is required in the delivery of your services to the client). Most of the time I haven't charged clients for this, and it's formed part of my daily / hourly rate. However, in this case the client has specifically said they would pay expenses, so I'm not going to argue as it will save me a considerable amount of money over the course of the contract. These business expenses cannot be charged as disbursements, so VAT has to be charged one way or another. I'm just waiting to see if the client is fussy about removing any input VAT before charging them output VAT.

[Spikeh]

I see no problem in providing receipts to show that yourCo has incurred the expense. Freeagent includes an option to include recharged receipts when you create your invoice.

I've had some other advice today regarding this - seems that showing clients receipts is fine as long as there's an invoice for it.

[radish2008]

Not quite as simple if a client expects something different - i.e. in this case they expect to pay the expenses without incurring additional tax. Makes no difference to the baseline at the end of the day, other than HMRC get a little bit more money out of us.

I just need to be sure I'm doing it right before I push the client one way or another.

Then I would push them down the VAT route. I have used disbursements before but only for one off expenses (domain registrations etc.). I'm not sure I'd feel comfortable doing it all the time. Surely they can't be that bothered ? They claim in back after all.

[Spikeh]

This is exactly what I do and I suspect the majority here. I book though their system, pay for it and then invoice plus VAT. It's simple.

Not quite as simple if a client expects something different - i.e. in this case they expect to pay the expenses without incurring additional tax. Makes no difference to the baseline at the end of the day, other than HMRC get a little bit more money out of us.

I just need to be sure I'm doing it right before I push the client one way or another.

[radish2008]

This is exactly what I do and I suspect the majority here. I book though their system, pay for it and then invoice plus VAT. It's simple.

[Spikeh]

Any experiences rebilling expenses to clients via a ltd co, NOT using an agent or client's internal expenses system (*shudder*)?


Yes, mostly really really simple

Also gets round 24 month rule + IR35 if your contract is caught when new rules come into the private sector

I work remotely for the vast majority of my contracts - plus I've never had a project last longer than maybe 1.5 years - so the 24 month rule doesn't come into it.

[tarbera]

Any experiences rebilling expenses to clients via a ltd co, NOT using an agent or client's internal expenses system (*shudder*)?


Yes, mostly really really simple

Also gets round 24 month rule + IR35 if your contract is caught when new rules come into the private sector

[mudskipper]

I see no problem in providing receipts to show that yourCo has incurred the expense. Freeagent includes an option to include recharged receipts when you create your invoice.

[Spikeh]

Hard not to overthink it when there's conflicting info everywhere

Well, I put forward some suggestions to the agent last night - I'll see what they come back with. Thanks for your responses.

[TheCyclingProgrammer]

Exactly as TCP says.

If the client doesn’t want to pay VAT on VAT then they should book and pay for the travel and hotels directly.
In no circumstance should you try and class these expenses as a disbursement no matter how attractive that may seem.

There is no “VAT on VAT” in my example. If the original expense cost £200 + VAT and you’ve agreed to recharge expenses “at cost”, you should recharge the client the exact same £200 + VAT. It makes absolutely no difference if the client pays directly or you pay and recharge as the net cost is the same.

Handling recharges in this way is what most clients would expect. Disbursements are largely a red herring as most of the time the end result is the same as when you recharge.

Generally speaking, correctly handling disbursements (where you simply pass through the cost without accounting for either input or output VAT) only matters where the original cost didn’t have any VAT and the client is unable to reclaim VAT. This is because you have to add VAT to recharges regardless of whether there was VAT on the original cost, whereas with disbursements you don’t. But if the client can reclaim the VAT it doesn’t matter if it’s a £200 disbursement with no VAT or a £200 + VAT recharge - it costs the client £200 either way.

TLDR; OP was wrong to say the client would be “taxed twice” because you simply invoice them for the same net cost you incurred.

Also, as for receipts, again this is a contractual issue. Your contract may stipulate that any recharged invoices are accompanied by receipts. What you should avoid is using the clients expense claim process. That is for their employees.

[Lance]

Exactly as TCP says.

If the client doesn’t want to pay VAT on VAT then they should book and pay for the travel and hotels directly.
In no circumstance should you try and class these expenses as a disbursement no matter how attractive that may seem.

[TheCyclingProgrammer]

This isn’t that complicated. Don’t overthink it.

You are correct that these are recharges not disbursements, so what you add to your invoice to cover your expenses is up to you. You could add a flat charge or recharge exactly what it cost you or even add a margin. It depends on what your client agrees or what is in your contract.

As you mention reclaiming the VAT on your expenses I assume you’re on the standard scheme. Therefore the net cost to you is the net cost before VAT and this is what I would recharge. This makes the whole thing VAT neutral for you and your client.

So for example: you charge £2500 for a week of services and also incur travel costs of £240 inc VAT.

You personally expense claim the £240 from YourCo which puts it back in your pocket (tax free as it’s business travel).

YourCo invoices the client:

Services: £2500
Expenses: £200
VAT £540

Your client reclaims the £540 on their VAT return.
YourCo pays HMRC £500 - £540 output VAT less the £40 input VAT incurred on the original expense.

The only quirk here is if the original expense had no VAT, you would still add VAT to it on your invoice as it’s just part of your overall fee and is standard rated. It makes no difference to the client.

Where people tend to run into issues is when they are on the flat rate scheme and due to not being able to directly recover the input VAT, they chose to recharge the gross cost (so in the above example the recharge would be £240 + VAT). This is a valid approach - you’re effectively adding a margin to your costs to cover the VAT - but a lot of clients and agents don’t like it (because it costs them more than if you recharge the net). Forunately you don’t need to worry about this. Just recharge the net cost.