Flat Rate Scheme and invoice of expenses

[dude69]

I understand that VAT must be charged on the value of the expense being claimed. However, is it legitimate for a client to require you to only claim net expenses (without VAT) and then add the VAT to that on the invoice?

For example, if lunch costs me £10 (VAT inclusive), I normally invoice £10 + VAT = £11.75.

Can a client say they are only prepared to pay VAT exclusive expenses? i.e. although lunch costs me £10, I'm only allowed to claim £8.51 which I invoice as £8.51 + VAT = £10. I think this is perfectly legal from a VAT point of view as the VAT man can't decide how much you invoice, only that anything you do invoice has the VAT element.

I think the answer is probably that the client can decide to reimburse you exactly what they want. However, in my experience the VAT position is rarely documented explicitly in any contract or expense policy.

If it is not explicitly documented, that is because it doesn't need to be. The VAT rules are set down by HMRC.

However many accounts departments don't know what they are doing. I worked one place where the accountant had no clue about the VAT being added on - that is until the IR paid a visit.

[VectraMan]

If you present a receipt for £10 inc VAT and then ask for £11.75, someone's likely to think " 'ang on a minute".

As you say though, the client can do whatever they like. It's really nothing to do with the VAT rules, but in the above example I think I'd go for £8.51 + VAT.

With mileage expenses where there aren't receipts it's different, and the only time I've done it I invoiced for 40p per mile + VAT, paid myself 25p per mile (because I was past 10,000 miles), and then reclaimed 2p per mile VAT. Confused? I had to ask my accountant, but they agreed that was the right way to go about it.

[minstrel]

I understand that VAT must be charged on the value of the expense being claimed. However, is it legitimate for a client to require you to only claim net expenses (without VAT) and then add the VAT to that on the invoice?

For example, if lunch costs me £10 (VAT inclusive), I normally invoice £10 + VAT = £11.75.

Can a client say they are only prepared to pay VAT exclusive expenses? i.e. although lunch costs me £10, I'm only allowed to claim £8.51 which I invoice as £8.51 + VAT = £10. I think this is perfectly legal from a VAT point of view as the VAT man can't decide how much you invoice, only that anything you do invoice has the VAT element.

I think the answer is probably that the client can decide to reimburse you exactly what they want. However, in my experience the VAT position is rarely documented explicitly in any contract or expense policy.

I always do the first option, but a client did challenge me once. I ended up confusing the hell out of the poor girl in the expense department, and they eventually gave up arguing when I suggested they might be committing VAT fraud if they didn't do it my way.

[dude69]

Gents

Thanks for the replies - it is nice to get two answers that say the same thing!

When asking contractors at work, 2/3rds of them do not charge VAT on this invoice and 1/3rd do.

So those that do not have to 'fudge' the FRS calc to work out what to pay.

While I understand that 2/3 of them are clueless, I don't understand your second statement.

What fudging do they do?

Flat-rate VAT is just 13% of the total value of all your invoices - the amount of VAT charged or not charged on the invoices is totally irrelevant. That's it, the end (well, it's 12% in the first year, but apart from that).

Say you invoice for

Professional Services £2,000 (vatable) = £2,350 inc. vat
VAT Disbursement £500 (non-vatable) = £500 inc. vat

The value of the invoice is £2,850

You pay 13%/12% of that to HMRC

[JonSmile]

thanks for the replies

Gents

Thanks for the replies - it is nice to get two answers that say the same thing!

When asking contractors at work, 2/3rds of them do not charge VAT on this invoice and 1/3rd do.

So those that do not have to 'fudge' the FRS calc to work out what to pay.

Cheers
Jon

[dude69]

2. As a Ltd issuing an invoice for 40p per mile + employee lunch and parking to the agent - can I add VAT to this?

This is not a disbursement for VAT purpose, and hence you MUST charge VAT, even though VAT might have already been paid on the input (your lunch).

The only time costs billed onto the client is not VATable, is when the service being billed-on is being provided FOR the client by someone else. Providing lunch to you is not what the client is paying for. Otherwise you could say rather than £500 + VAT/day, you will charge £490 + VAT + £10 for lunch, thereby avoiding VAT on £10. Remember that HMRC WANTS you to pay as much VAT as possible, even though it turns out all our clients will simply claim it back.




You may treat a payment to a third party as a disbursement for VAT purposes if all the following conditions are met:

you acted as the agent of your client when you paid the third party;
your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, telephone bills, postage, and other costs being treated as disbursements for VAT purposes);
your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client);
your client authorised you to make the payment on their behalf;
your client knew that the goods or services you paid for would be provided by a third party;
your outlay will be separately itemised when you invoice your client;
you recover only the exact amount which you paid to the third party; and
the goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account.

[VectraMan]

1. Isn't a question, but you assume correct.

2. You not only can add VAT, you have to add VAT as it's effectively a sale. So yes you may make a small profit. However if you weren't on the FRS you could also claim up to 2p per mile back in VAT which would more than make up for the difference, so you'd be better off not being on the FRS.

[JonSmile]

Hi
Did a search and could not find the answer so here goes.

I work for a ltd company.

When going on business trips to a remote client site I (my ltd company) can invoice 40p per mile to the client (via the agent).

2 questions.
1. As employee I assume I can claim 40 pence per mile for business miles (as I am employee I need to get my fuel cost back on private car - under 10000 miles done in year) - this 40 pence is totally unrelated to what my ltd can charge to the agent / client.

2. As a Ltd issuing an invoice for 40p per mile + employee lunch and parking to the agent - can I add VAT to this?

I ask as I therefore assume if the answer to point 2 above is yes and as ltd is Flat Rate Scheme for every journey I as employee drive, the ltd makes a bit of profit on the invoice to the agent.


Cheers

Jon