Reply to: Travel Expense Advice Needed

[Contreras]

At the risk of being shot...

As you're claiming via the employee system, can you not forget yourCo in the equation, and get the client to reimburse you directly? The expense never goes via yourCo.

Hector understandably gets quite upset about cash-in-hand payments made with the intention to circumvent VAT rules.

You could make this legit by declaring the payment as BiK. The company would need to issue a VAT invoice to match the gross amount received and then pay the FRS percentage as normal.

[TheFaQQer]

At the risk of being shot...

As you're claiming via the employee system, can you not forget yourCo in the equation, and get the client to reimburse you directly? The expense never goes via yourCo.

You could.

Would the client co expect that all their suppliers do that, though, or only people that they think of as employees?

If they pay that way for all their suppliers, then it's not a differentiator, so isn't an IR35 indicator; if they don't then I'd steer well clear of reimbursing it that way.

[TheFaQQer]

1. ContractorCo pays for the expense and recharges ClientCo £156 + VAT = £187.20. ClientCo claims back the added VAT. Net cost to ClientCo is £156.
   
2. ClientCo pays the expense directly, contractor never sees the bill. Net cost to ClientCo is £156 minus VAT = £130.
   
3. Contractor pays for the expense personally then gives ClientCo a receipt for £156 INC VAT. Client pays £156 into the contractor's personal bank account and claims back the VAT. Net cost to ClientCo is £130.

I can see why clients would like to avoid option 1. I'm sure lots of self employed people use options 2 or 3. Or would most people here run a mile from that for fear of causing bad IR35 karma?

I'd do 1 or 2, but never 3. Current client books my flights and pays for them direct, as they would with all their suppliers that they ask to travel by plane, so I have no issue with that.

I'd never allow the client to go near my personal bank account - do it properly. If they will only reimburse the £130 then I would take the hit and bear that in mind for every other time that they ask whether I can be available on another site.

[mudskipper]

At the risk of being shot...

As you're claiming via the employee system, can you not forget yourCo in the equation, and get the client to reimburse you directly? The expense never goes via yourCo.

[Contreras]

Hang on a moment...

If he is using the client's portal to claim a personal expense, are we sure it isn't a disbursement rather than a refund of a business expense? Which makes the VAT position correct, since the client's portal will be set up for employees. And if they are paying HisCo rather than him personally, someone is getting it wrong...

As the travel & accommodation was for himself then the expense is most definitely not a disbursement.

Using the client's portal does not make it a disbursement either.

Think of it as sleeping in the bed has "added value" to that being expensed.

It is must therefore be recharged and invoiced with VAT added.

The actual amount to recharge is a matter between him and the agency, just so long as VAT is added and HMRC get their cut.

[Wanderer]

You pay £156
You claim £156 from your company.
Your Company invoices £156+VAT to the client / agency
Your company pays the VAT to HMRC.

Many agencies and clients complain that you are adding VAT on VAT, but as others have explained, that isn't right - you are adding VAT onto the cost of you providing the service. They can then reclaim the VAT back from HMRC, so it's a zero sum game to all concerned.

It's not quite a zero sum game though....

Consider these scenarios with an expense of £156:

1. ContractorCo pays for the expense and recharges ClientCo £156 + VAT = £187.20. ClientCo claims back the added VAT. Net cost to ClientCo is £156.
   
2. ClientCo pays the expense directly, contractor never sees the bill. Net cost to ClientCo is £156 minus VAT = £130.
   
3. Contractor pays for the expense personally then gives ClientCo a receipt for £156 INC VAT. Client pays £156 into the contractor's personal bank account and claims back the VAT. Net cost to ClientCo is £130.

I can see why clients would like to avoid option 1. I'm sure lots of self employed people use options 2 or 3. Or would most people here run a mile from that for fear of causing bad IR35 karma?

[captainham]

Thanks again for all the advice everyone.

Checked my contract and there is nothing in there about how I should process/ submit my expenses in relation to gross or net of VAT. Think i'll just submit them at cost plus VAT and see if they get through. If they get rejected then i'll just put it down to a loss on my part and not travel again

Cheers.

Depends how you want to play it, but if there are no explicit terms in the contract then to me that means you charge VAT on top of the full amount you originally paid (including the VAT you paid yourself).

So for me I'd be prepared to argue the toss as I don't see how the agent could argue anything else (assuming the contract states you are allowed to charge expenses of course, and assuming there are no terms that state you need prior written approval, in which case I hope you have that, etc etc, i.e., your end is squeaky clean, so to speak...).

[busgrw]

Thanks again for all the advice everyone.

Checked my contract and there is nothing in there about how I should process/ submit my expenses in relation to gross or net of VAT. Think i'll just submit them at cost plus VAT and see if they get through. If they get rejected then i'll just put it down to a loss on my part and not travel again

Cheers.

[TheCyclingProgrammer]

I know it may sound daft but you're not charging VAT on top of VAT. You're charging VAT on top on an amount to be recharged. The recharged amount could be £100 or £1,000. Either way, if it is not a disbursement, it's VATable. Both your client and accountant need to get their heads around it. The linky should help.

Exactly. This "VAT on VAT" nonsense typically originates with agents that don't understand how VAT works. OP: forget the VAT element of the original expense that you incurred - its not directly relevant to what you recharge. You should recharge whatever it cost your company - in this case, that's the full gross amount as YourCo cannot reclaim the VAT.

If the original expense had no VAT (e.g. it was zero-rated or exempt), you'd still have to charge VAT. How would your client deal with that?

[malvolio]

If it is an expense, then it should be VATable - whether your contract allows this or not is a separate question. What should happen in this case is:

You pay £156
You claim £156 from your company.
Your Company invoices £156+VAT to the client / agency
Your company pays the VAT to HMRC.

Many agencies and clients complain that you are adding VAT on VAT, but as others have explained, that isn't right - you are adding VAT onto the cost of you providing the service. They can then reclaim the VAT back from HMRC, so it's a zero sum game to all concerned.

There may be a clause in your contract which states whether expenses should be invoiced net or gross, and if the contract prevents you from billing it correctly then you need to stick to the contract. It's the same as having a clause which says "we will pay up to £130 a night for hotels" - if you incur more than that, then that's up to your company whether they approve your expenses or not.

Ah but, the situation, from the client's viewpoint, is subtly different. I fully accept the business expense argument and how it should be charged. However, the client are using an internal service to repay a bill incurred by an "employee" (cough...) on their behalf. The OP's Ltd Co is nowhere to be seen in that scenario. Which is why I'm thinking it is in fact a disbursement rather than an expense claim.

Happy to be proved wrong, but I'll give good odds that's how clients and agencies see it.

[TheFaQQer]

Martin at NixonWilliams - this is exactly my position. My client will not allow me to add VAT on top of VAT (this is also what my Accountant advised to do). Will have a read of the thread now.

If it is an expense, then it should be VATable - whether your contract allows this or not is a separate question. What should happen in this case is:

You pay £156
You claim £156 from your company.
Your Company invoices £156+VAT to the client / agency
Your company pays the VAT to HMRC.

Many agencies and clients complain that you are adding VAT on VAT, but as others have explained, that isn't right - you are adding VAT onto the cost of you providing the service. They can then reclaim the VAT back from HMRC, so it's a zero sum game to all concerned.

There may be a clause in your contract which states whether expenses should be invoiced net or gross, and if the contract prevents you from billing it correctly then you need to stick to the contract. It's the same as having a clause which says "we will pay up to £130 a night for hotels" - if you incur more than that, then that's up to your company whether they approve your expenses or not.

[Clare@InTouch]

Thanks everyone for your replies. All good helpful info.

Malvolio, the £156 is just the example. I'll be out a lot more in reality. And fair point on doing more searching. Just thought i'd get an answer quicker with a post given time is short
Martin at NixonWilliams - this is exactly my position. My client will not allow me to add VAT on top of VAT (this is also what my Accountant advised to do). Will have a read of the thread now.
Craig@InTouch, same as above. I cannot recharge as an expense as the self billing system my client uses automatically creates it as an invoice.

I'm assuming the "hi Claire" one is an 'in-house' joke so will not take the bait

TheFaQQer - I'm not sure. It sounds simple when you put it like that so will ask the question to my accountant and see what she says.

Thanks all.

There are two sides to this - your company and you personally.

As an employee you have spent £156 and so your employer (being your company) should repay you £156. Simples.

Your employer will bill it's client £156 for expenses, and will then need to pay 14% of that to HMRC in flat rate VAT. This does mean you will lose out slightly, but if the client is dictating how much you're "allowed" to charge for an expense then that's often the case. If you have a lot of expenses you should consider whether the flat rate scheme is appropriate for you.


(ignore the Claire reference, it's Craig being mean to me )

[Craig@Clarity]

Craig been out on the pop at lunch time?

Well you weren't going to get them in!

[Craig@Clarity]

Martin at NixonWilliams - this is exactly my position. My client will not allow me to add VAT on top of VAT (this is also what my Accountant advised to do). Will have a read of the thread now.
Craig@InTouch, same as above. I cannot recharge as an expense as the self billing system my client uses automatically creates it as an invoice.
.

I know it may sound daft but you're not charging VAT on top of VAT. You're charging VAT on top on an amount to be recharged. The recharged amount could be £100 or £1,000. Either way, if it is not a disbursement, it's VATable. Both your client and accountant need to get their heads around it. The linky should help.

[malvolio]

Hang on a moment...

If he is using the client's portal to claim a personal expense, are we sure it isn't a disbursement rather than a refund of a business expense? Which makes the VAT position correct, since the client's portal will be set up for employees. And if they are paying HisCo rather than him personally, someone is getting it wrong...

busgrw - Now do you see why I say business expense should stay with YourCo? My current client even has a rail ticket printer in the office, as well as a hotel booking system - but since they are for their employees, I ignore them and invoice my expenses at cost plus VAT. Next time, do not agree to using employee systems for payment. And check your contract, just in case it's a convenience for the client rather than a necessity to observe a contractual requirement.