Reply to: Contractor expense claim

[dynamicsaxcontractor]

I just put one line on my invoices for expenses and on that line I put the amount I have spent on expenses. Then on the total of the invoice I have to add VAT. What I put on the expense line might or might not include what I paid in VAT and might or might not include the amount on the receipt (sometime for example I upgrade a train ticket and foot the bill for the upgrade myself).

Remember, you are not an employee so expenses are a service you have provided - not an expense claim.....

[Segush]

That's the point. People are confusing expenss, VAT and cost of doing business. You charge to the client is to recover your time spent (whic includes your profit margin) and your expenses incurred. Whether or not the expenses contain VAT is irrelevant, you charge them at cost. And since you are invoiing a UK client in the UK, you have to add VAT at the prevailing rate to the gross invoice value.

That makes sense, glad I am not doing it all wrong!!!!

Thanks

[malvolio]

Why? I have been a total of 8 weeks outside the EU (Thailand, USA, Venezuela) for work and if I do not add VAT I would have been out of pocket, I do not get this. My accountant views are different.

Invoice goes with 1 item for a total of x expenses, then 20% VAT on top as from that I am paying back 14.5% VAT (FRS).

Regards

That's the point. People are confusing expenss, VAT and cost of doing business. You charge to the client is to recover your time spent (whic includes your profit margin) and your expenses incurred. Whether or not the expenses contain VAT is irrelevant, you charge them at cost. And since you are invoiing a UK client in the UK, you have to add VAT at the prevailing rate to the gross invoice value.

[Segush]

Interesting views here.
Meanwhile my accountant said they clairified with HMRC VAT dept. Expenses outside EU no VAT should be included on invoice to client, and to not declare the expenses on vat figures.

Why? I have been a total of 8 weeks outside the EU (Thailand, USA, Venezuela) for work and if I do not add VAT I would have been out of pocket, I do not get this. My accountant views are different.

Invoice goes with 1 item for a total of x expenses, then 20% VAT on top as from that I am paying back 14.5% VAT (FRS).

Regards

[diesel]

Interesting views here.
I sent the HMRC link to the finance dept and they replied nothing to do with them - deal with your agent! (agent did not have a clue hence why i was directed to client finance dept).
anyway agent agree all expenses plus VAT.

Meanwhile my accountant said they clairified with HMRC VAT dept. Expenses outside EU no VAT should be included on invoice to client, and to not declare the expenses on vat figures.

[Segush]

Simple.

a) All my business expenses are paid for by MyCo directly, using the company credit card. They never go anywhere near my personal bank account.

b) Money spent = charge to client (assuming it's a reclaimable expense of course. Some things I don't charge for).

c) A charge to a client has to attract VAT, which is the whole basic principle pf VAT.

d) Therefore, expenses are charged at total cost + VAT

e) and...

f) as previously mentioned, if you work it through, the net VAT paid is exactly the same. So why worry about it.

These are expenses, not disbursements. The disbursement is between You and YourCo. In my case, that never happens.

OK you can argue completely the opposite case, since the various rules are imprecise. And I don't use FRS precisely because it can more often cost me money rather than save it. But at the end of the day, what you charge your client is whatever you have both agreed can be charged. Plus VAT.

I must agree with the above, and this is the way it has been working for me. I am on the FRS I forgot to mention before, will review whether it is worth staying next year.

I also travel a lot overseas but always let my Client pay for flights hotels (if staying overseas for weeks) as this makes more sense than me paying for these and adding 20% VAT on top. I am not given a daily allowance when I am abroad but all expenses are reclaimable, so I keep all the receipts for meals taxis etc which I would normally pay with my company CC and when I am back I will add an item in my invoice with the total sum which I then add 20% VAT on top.

Regards

[Greg@CapitalCity]

I am due to travel to Far East with a major client (big company over 40,000 employees inc many contractors)

I doubt your trip to the Far East will incur any VAT, so this might be a non-issue for you.

[diesel]

Simple.

a) All my business expenses are paid for by MyCo directly, using the company credit card. They never go anywhere near my personal bank account.

b) Money spent = charge to client (assuming it's a reclaimable expense of course. Some things I don't charge for).

c) A charge to a client has to attract VAT, which is the whole basic principle pf VAT.

d) Therefore, expenses are charged at total cost + VAT

e) and...

f) as previously mentioned, if you work it through, the net VAT paid is exactly the same. So why worry about it.

These are expenses, not disbursements. The disbursement is between You and YourCo. In my case, that never happens.

OK you can argue completely the opposite case, since the various rules are imprecise. And I don't use FRS precisely because it can more often cost me money rather than save it. But at the end of the day, what you charge your client is whatever you have both agreed can be charged. Plus VAT.

agree, except i use my own credit card, but cant see much difference (easier to manage for me) unless i was on the road a lot.
I actually should be stating my case to agency not client!
I am on FRS but dont expect to change unless i have lots of expenses, although gain a few pounds on the difference as bonus!

[malvolio]

cant get hold of her, will have to await for an email reply. but i want to know what other Ltd Co FRS contractors do.

Simple.

a) All my business expenses are paid for by MyCo directly, using the company credit card. They never go anywhere near my personal bank account.

b) Money spent = charge to client (assuming it's a reclaimable expense of course. Some things I don't charge for).

c) A charge to a client has to attract VAT, which is the whole basic principle pf VAT.

d) Therefore, expenses are charged at total cost + VAT

e) and...

f) as previously mentioned, if you work it through, the net VAT paid is exactly the same. So why worry about it.

These are expenses, not disbursements. The disbursement is between You and YourCo. In my case, that never happens.

OK you can argue completely the opposite case, since the various rules are imprecise. And I don't use FRS precisely because it can more often cost me money rather than save it. But at the end of the day, what you charge your client is whatever you have both agreed can be charged. Plus VAT.

[Sockpuppet]

Then you'll be out of pocket...

Only if your on flat rate Vat.

[captainham]

Fair enough - but then the client is paying £144 for a hotel room that has only cost £100 + £20 VAT.

Speaking as an accountant I would send that invoice straight back to you and refuse to pay it!

Not if I'd already negotiated those terms in my contract upfront, you wouldn't

The client is not actually paying for my hotel room. I paid for my own room, and I'm charging that back plus a % on top for my time and troubles.

But you are technically right about how it should work and about how staying on FRS is not always wise...my point is simply that it is not always a case of straightforward recharging, it's whatever you agree it is in advance and get it in the contract.

[diesel]

I would ask if they have the same rules for non-VAT registered contractors and when they say "applies to all" dob them in with HMRC.

A call to the client "Finance Dept" from a VAT inspector will achieve far more than you ever will.


You could try the link posted in this thread (twice) already.

Here it is again: HM Revenue & Customs: Costs passed on to clients - disbursements - and VAT

And what it says:

Hi Thank you for posting this link (must have missed it before)
How i read it is i charge VAT on my final regardless if VAT has been incurred on the original expense or not. Does this also mean my first scenario was right if hotel bill is £100+VAT to personal charge, one would invoice £120+VAT on Ltd Co invoice.

thank you, sent the link to client finance manager, suspect they will still find a loophole to prove me wrong.

[Contreras]

This is response from client FInance Dept:
We cannot pay VAT on any receipts that have not incurred VAT.

I would ask if they have the same rules for non-VAT registered contractors and when they say "applies to all" dob them in with HMRC.

A call to the client "Finance Dept" from a VAT inspector will achieve far more than you ever will.

please can anyone direct me to any HMRC weblinks that i can tell client finance company to use.

You could try the link posted in this thread (twice) already.

Here it is again: HM Revenue & Customs: Costs passed on to clients - disbursements - and VAT

And what it says:

There are many incidental costs that your business might incur that you can't exclude from the VAT calculation when you invoice your customers. These could include travelling expenses and your own postage costs. They aren't treated as disbursements for VAT purposes.

Any costs that your business incurs itself in the course of supplying goods or services to customers are not disbursements for VAT purposes. It's you, and not your customer, who purchases the goods or services, which are supplied to and used by your business.

It's up to you whether or not you itemise costs like these on your invoices. If you do show them separately when you invoice your customers then they're known as 'recharges', and not disbursements, for VAT. You'll have to charge VAT on them whether you paid any VAT or not.

[diesel]

What does your accountant suggest?

cant get hold of her, will have to await for an email reply. but i want to know what other Ltd Co FRS contractors do.

[northernladuk]

Sarah,
i see your point but i always billed previous clients in this manner and never been questioned. My current newish client is working differently.
So if i pay £120 out of my personal CC for a bill, then you are saying i only charge agency £120..?
So how does my Ltd Co pay my director incurred expenses the same £120 back? (without incurring FRS VAT on the £120?)

Also i am doing overseas travel end of the day i get all my totals from hotels, allowance, taxis etc add them up and add VAT to the agency - are you & my existing client saying this is not the case?

(there appears to be different systems for this, and really welcome any HMRC links or referenced examples as my query has gone back to client finance dept. not asking to profit on expenses but to do it 100% right)
thanks

What does your accountant suggest?