Reply to: Charge client VAT on train ticket?

[VectraMan]

btw, not arguing about whether the client would accept this - in my view its perfectly legitimate to add a markup to expenses that you incur on their behalf. But the point is that it is not VAT, its just profit.

Exactly - it's nothing to do with VAT. There's no reason at all why you couldn't charge the client double the value of expenses, or half, it's just an agreement between the two of you. So it's perfectly legal to do whatever you want, but if you're VAT registered your invoice to them must have VAT added on top.

[XLMonkey]

Yes

[oraclesmith]

I too charge VAT on the gross cost to Myco of some travel and accommodation costs. I don't charge them as expenses on the invoice but rather as a fee to attend a workshop/meeting etc in a particular location, which naturally attracts VAT. I only charge for visits outside the UK and all the costs go through my limited company.

It reinforces the fact that I am a consultant charging for my services and not an employee claiming expenses.

I'm on the flat rate scheme too, which means the more VAT I can charge the more I can make. Like Spacecadet, if I arrange everything it will almost always save the client money because I can find cheaper flights and accommodation then they can through their own scheme.

[MugsGame]

Riiiiight, OK. It's all so clear!

So from what you've all (kindly) said, I will be charging VAT on the train ticket on my invoice.

ie. the ticket was £123 (I know!) so I charge £144.53

And the client claims the VAT back anyway. Even though I didn't pay VAT on the ticket in the first place.

Yes?

[expat]

Under the advice of our accountant we allways charge VAT on gross.

E.g., hotel costs £100 + VAT.

We bill client £117.50 + VAT.


Never had a client complain about this.

It is good advice for you, because that way the client is giving YourCo a gift of £17.50. That is my "case 2": you are merely billing the client a sum of money. If they agree to pay it, fine. You are making a profit out of it, but that's business.

Note: i.e. agree with XLMonkey post preceding.

[XLMonkey]

yourco charges the client 80 GBP plus VAT Plus VAT = 110 GBP

You can do this, but in the eyes of HMRC, this translates as

80 GBP input expenses
17.5% markup charged by yourco and treated as profit in your accounts
17.5% VAT on the total charged to the client.

btw, not arguing about whether the client would accept this - in my view its perfectly legitimate to add a markup to expenses that you incur on their behalf. But the point is that it is not VAT, its just profit.

[blacjac]

1. Not if you personally pay the expense and have it reimbursed by the client (but then YourCo does not get to clam back VAT because it hasn't paid it.

2. Yes if Yourco pays it, but YourCo adds VAT to the NET cost, which is = cost for a train ticket but not for a hotel. And for a taxi, it depends on whether the taxi driver/company is registered for VAT or not.
Clear?

Under the advice of our accountant we allways charge VAT on gross.

E.g., hotel costs £100 + VAT.

We bill client £117.50 + VAT.


Never had a client complain about this.

[Sausage Surprise]

I think I've charged 3 different ways on my last 3 gigs. Depends on the client in my experience. Never found a satisfactory explanation to this one.

[expat]

A long thread for a simple question / answer:

Recharged expenses must have VAT added to them.

1. Not if you personally pay the expense and have it reimbursed by the client (but then YourCo does not get to clam back VAT because it hasn't paid it.

2. Yes if Yourco pays it, but YourCo adds VAT to the NET cost, which is = cost for a train ticket but not for a hotel. And for a taxi, it depends on whether the taxi driver/company is registered for VAT or not.

Clear?

[Spacecadet]

Why wouldn't you add VAT if you're on the FRS?

I alway add VAT on top of expenses as I can argue I've added value (that and the accountant said to do it like that)...

I always add VAT on top too
but
a) the client never sees the reciepts for any of my expenses
b) I go to the effort of making the bookings myself
c) I know for a fact that if the client co had booked travel and hotels for me then it would have ended up costing them more (lazy perm who does the bookings)

In a typical month I probably save them £200-300 by finding cheaper flight options than they book as standard and I take the financial risk of being out of pocket if for any reason I miss a flight.

[Alan @ BroomeAffinity]

A long thread for a simple question / answer:

Recharged expenses must have VAT added to them.

[XLMonkey]

Most clients tend to go for the latter when explained to them as they don't want to jeopardise their relationship with their clients for a relatively modest amount.

Yep, unless your expenses are very significant, then the losses on the flat rate scheme are very low (and more than made up for by the extra profit you make on your own services). I did drop off the flat rate scheme last year as I was supplying a significant amount of extra stuff (hardware & software) on one project and I worked out that I was losing money on it!

[Moscow Mule]

It does matter. Since you are on the flat rate scheme, you will pay VAT (probably at 13%) on the total value of your sales in each quarter. Your sales includes your expenses (since you are recharging these to the client).

If you are on the flat rate scheme then you cannot reclaim VAT on your input costs (the expenses yourco paid out). As a result, you will tend to lose money on your expenses if they have VAT on them. For example:

you stay at a hotel at 80 GBP plus VAT = 94 GBP
yourco charges the client 80 GBP plus VAT = 94 GBP
yourco pays HMRC 13% of 94 GBP = 12.22 GBP
net loss = 12.22 (since yourco paid out 12.22 more than the it reclaimed)

But, if the expense has no VAT on it, then you make money
you take a train at 80 GBP plus 0% VAT = 80 GBP
yourco charges the client 80 GBP plus VAT = 94 GBP
yourco pays HMRC 13% of 94 GBP = 12.22 GBP
net profit = 1.78

Generally, the higher your rechargeable expenses, the less attractive the flat rate scheme becomes.

yourco charges the client 80 GBP plus VAT Plus VAT = 110 GBP

[Moscow Mule]

Yes, that's my "version 2". It is possible but not obligatory: you can just pass the expense on to the client, as against billing them for it.

Why wouldn't you add VAT if you're on the FRS?

I alway add VAT on top of expenses as I can argue I've added value (that and the accountant said to do it like that)...

[XLMonkey]

I run a standard Ltd co, and am on the flat rate VAT scheme, if that matters.

It does matter. Since you are on the flat rate scheme, you will pay VAT (probably at 13%) on the total value of your sales in each quarter. Your sales includes your expenses (since you are recharging these to the client).

If you are on the flat rate scheme then you cannot reclaim VAT on your input costs (the expenses yourco paid out). As a result, you will tend to lose money on your expenses if they have VAT on them. For example:

you stay at a hotel at 80 GBP plus VAT = 94 GBP
yourco charges the client 80 GBP plus VAT = 94 GBP
yourco pays HMRC 13% of 94 GBP = 12.22 GBP
net loss = 12.22 (since yourco paid out 12.22 more than the it reclaimed)

But, if the expense has no VAT on it, then you make money
you take a train at 80 GBP plus 0% VAT = 80 GBP
yourco charges the client 80 GBP plus VAT = 94 GBP
yourco pays HMRC 13% of 94 GBP = 12.22 GBP
net profit = 1.78

Generally, the higher your rechargeable expenses, the less attractive the flat rate scheme becomes.