Reply to: VAT on espenses paid direct

[expat]

So if I understand correctly I can claim reimbursement from my client for the £10 taxi fare supported by the receipt (please note I can't "simply tell" them anything - they expect receipts for everything) and because it is a reimbursement (not an invoice) there is no VAT to charge. Do I include this anywhere on my VAT return? I have paid £1.49 in VAT to the taxi company.

No! If you are being reimbursed for a taxi fare that cost 10.00, it is just as if the client had paid in the first place. You give them the receipt and they give you what you have paid. Any VAT is then their concern, not yours. You're not in the chain for VAT so you don't enter it anywhere. You haven't lost anything because you get reimbursed for what you actually paid: and you haven't paid 1.49 in VAT to the taxi company, it's the client that has paid 1.49 VAT.

Or (instead) you could invoice them for 8.51 + VAT. Then it's going through your books, and you are in the VAT chain. You "pay" the VAT of 1.49 that you charged - minus of course the VAT of 1.49 that you paid the taxi-driver.

Bradley: it's VATable (to you) or not according to whether it's treated as expenditure and income on your books, or as an expense paid by the client. For your client it's VATable anyway, the only question is whether you are in the chain or not.

More precisely, it's VATable for your client providing you have given them the correct VAT documentation: your invoice if you're invoicing it; or the taxi's VAT receipt if you're simply passing it on.

[boredsenseless]

But you haven't got a receipt you've given it to the client so you can't claim the VAT

[philp]

Ahem! You either invoice your client for something, or you get them to defray an expense.

In the latter case you simply tell them that you paid 11.75 for a taxi, and they pay that. Whether that is justified or not is a separate question.

But the central point about expenses is that they are either expenses reimbursed, or they are amounts invoiced, but not both. If they are reimbursements, you don't need to think about VAT.

So if I understand correctly I can claim reimbursement from my client for the £10 taxi fare supported by the receipt (please note I can't "simply tell" them anything - they expect receipts for everything) and because it is a reimbursement (not an invoice) there is no VAT to charge. Do I include this anywhere on my VAT return? I have paid £1.49 in VAT to the taxi company.

[Bradley]

Re:Split

But the central point about expenses is that they are either expenses reimbursed, or they are amounts invoiced, but not both. If they are reimbursements, you don't need to think about VAT.

So what you're saying is that anything you incur as part of fulfilling the contract is VATable as part of one service but anything you incur on behalf of the client e.g. licenses is non-VATable?

[expat]

Ahem! You either invoice your client for something, or you get them to defray an expense.

In the latter case you simply tell them that you paid 11.75 for a taxi, and they pay that. Whether that is justified or not is a separate question.

In the former case, you paid 10.00 + VAT for goods or services used in the project (taxi ride); and you bill the client 10.00 + VAT.

Net result to you is zero in either case.

Note that the second case is just as if the client had paid it and you hadn't, but in the first case you could well have, say, marked up your costs by e.g. 200% (a rip-off but not illegal) and charged your client 30.00 + VAT = 35.25, in which case you'd actually have to pay VAT of 5.25 - 1.75, i.e. 3.50, which is indeed 17.5% of the 20.00 "value that you added".

But the central point about expenses is that they are either expenses reimbursed, or they are amounts invoiced, but not both. If they are reimbursements, you don't need to think about VAT.

[philp]

Is the client direct? If you invoice the UK agent who invoices the Swiss client then you should charge VAT.

Thanks - client is direct but it seems that costs incurred in the UK (i.e. travel) are still VATable - makes sense I guess.

[philp]

Move to India. There is no VAT.

HTH

Obviously you've never been to India!! They have a complicated state sales tax regime different in each of the 27 states and last I heard they were due to rationalise this with a country level VAT from April 1, 2005.

Appreciate the sentiment - next time suggest Bermuda - where there is also no income tax, CGT, sales tax, VAT, etc.

[Bradley]

I notice solicitors don't charge VAT on their disbursements so there must be some legal way around this.

That's because the solicitor is acting as agent for his client and so is incurring those expenses on behalf of his client. That's different from incurring them yourself and then re-charging them.

My problem is that my client is in Switzerland so I don't charge any VAT for the real value added services and my travel costs are high so the VATman may scrutinize my returns more thoroughly.

Is the client direct? If you invoice the UK agent who invoices the Swiss client then you should charge VAT.

[DimPrawn]

Move to India. There is no VAT.

HTH

[philp]

Thank you all for the great replies. I will run it by my accountant but two things seem clear:
1. I don't want to make a profit from my client on my disbursements even if its legal
2. Any transaction where there is 38% VAT when no value has been added is wrong
I notice solicitors don't charge VAT on their disbursements so there must be some legal way around this.
My problem is that my client is in Switzerland so I don't charge any VAT for the real value added services and my travel costs are high so the VATman may scrutinize my returns more thoroughly.

If anyone has any other suggestions it would be much appreciated.

[Bradley]

Re:Expenses

This is because you bought the item, the client bought the service of you buying the item and services are liable to VAT

This is the key point explained to me by my accountant. It is not the goods you are adding VAT to, it is the service, whether or not the goods are VAT'able or not.

The point is that in the absence of an agreement to the contrary you get to choose what you charge the client for the expenses incurred. It could be £8.51 plus VAT or £10.00 plus VAT or £99.99 plus VAT. In the last two cases you make a profit of £1.49 and £91.48 respectively.

If your agreement is you charge the expenses at the cost to you that must be less anything you can reclaim i.e. £1.49 input VAT.

[ratewhore]

This is because you bought the item, the client bought the service of you buying the item and services are liable to VAT

This is the key point explained to me by my accountant. It is not the goods you are adding VAT to, it is the service, whether or not the goods are VAT'able or not.

[malvolio]

But in the case of the taxi fare:

1. Yes you reclaim the input VAT as part of the total paid out on your VAT100

2. The taxi fare is part of your costs of providing a service to the client hence attracts VAT against the total expenditure, not the VAT-exclusive amount.

3. You don't normally care if your client can reclaim VAT, the law is that you add VAT to any bill for services if you are VAT registered.

This does appear to lead to double-VAT on some expenses, which appears to be all wrong but is entrely permissable. Do not treat the taxi fare as an end-to-end expenditure on behalf of the client, it's part of your cost of sales - that way it all makes sense.

[boredsenseless]

Please could Taxman (or anyone) clarify your post about what seems to be double VAT. If, as a VAT registered contractor, I take a taxi (which is VAT registered) to a client site (who may or may not be VAT registered) and say the taxi fare is £10 (i.e. £8.51 + £1.49 VAT) then I should charge the client £11.75? My agreement with the client is that he pays my disbursements, which includes travel costs.

Thanks.

No - In my view of this (and I haven't done it myself I get an accountant to do it for me) - you claim back the 1.49 against your own VAT liability. You then charge the end client for 8.51.

You then apply VAT at 17.5% to your entire expenses invoice. In this case the cost is the same, however if you have train travel (which is VAT exempt) the end client pays 17.5% on it also.

This is because you bought the item, the client bought the service of you buying the item and services are liable to VAT

If you try to invoice without VAT added explicitly then HMRC will ask you for more VAT, if you try to invoice for the full amount and then add VAT just watch your invoice go into a black hole at your clients account dept

[philp]

Double VAT

Please could Taxman (or anyone) clarify your post about what seems to be double VAT. If, as a VAT registered contractor, I take a taxi (which is VAT registered) to a client site (who may or may not be VAT registered) and say the taxi fare is £10 (i.e. £8.51 + £1.49 VAT) then I should charge the client £11.75? My agreement with the client is that he pays my disbursements, which includes travel costs.

Thanks.