Reply to: Do I get vat refunded?

[TheCyclingProgrammer]

The above is mostly correct but lets not forget that the net cost you charge to your client whether it be net of the original VAT, gross, a flat or fixed rate etc. is all a matter of contractual agreement, just as TheFaQQer said above. If the agency is doing self-billing and is re-billing your expenses net of the original VAT because that's what the contract says, this is not fraudulent.

HMRC don't care because its nothing to do with them unless you're not charging VAT correctly. Assuming the expense isn't a disbursement, they don't care what you are charging your client as long as you are adding VAT on top of it and everybody is paying the VAT they owe.

[Sausage Surprise]

Nicked from someone on here years ago.....

Since you are VAT registered you are required to charge VAT on all invoices to your clients (in this case, the agency). The VAT you have already paid in your expenses is part of your cost of sales, so it is entirely legitimate that you add VAT to it - the underlying logic is that you have "added value" by performing the service itself, hence the tax is due. It is a myth that you are charging VAT on VAT, that doesn't actually matter at all. Nor is it a cost you your agency, since they will recover any VAT they pay out from their own clients.

By removing the VAT element the agency is effectively reducing their own tax bill at your expense. Hence, fraudulent behaviour.

This is all spelt out on the HMRC website (somewhere!!) and in Tolleys and in accepted practice. However, looking at the end-to-end transaction chain the nett VAT actually paid to HMRC works out the same, so they don't really care either way, it's only you that is losing money. You should speak to your own accountant for the official argument.

[TheFaQQer]

Which is another can of worms and potentially, you should have charged the client £180 + VAT (£36) = £216

Only if that is what has been agreed with the client. You invoice the client what has been agreed with the client, regardless of the reimbursement to the employee.

If the agreement with the client is that you invoice the net amount, then that's what you do and suck up that cost as necessary; if the agreement with the client is that you invoice the gross amount and then add VAT to that, then that's what you invoice; if the agreement with the client is that you invoice a flat rate, then that's what you invoice.

[stek]

Christ it's thirty quid, what the issue?

[mudskipper]

https://www.planitservices.co.uk/VAT..._Expenses.html

This explains it quite nicely.

[onthegreen]

The employee gets his £180 back from the company (yourCo).

YourCo gets the VAT back by reclaiming it from HMRC.

Because you're on the flat rate scheme, you don't reclaim VAT on individual expenses. The 'profit' from the flat rate scheme is intended to cover the VAT on purchases.

+1, got it now.

[onthegreen]

Did you read tractor's link?

Particularly the section headed 'What isn't a disbursement for VAT purposes'

YourCo charges VAT because you've 'added value' to the expense.

What examples have you read? Links?

I know and i understand it. I just need to see the full journey and money inflows and outflows...

[mudskipper]

It is funny because all the examples i read say that you should include your expense in the invoice net of VAT, in my example, £150, and then charge the VAT you charge. That is what my accountant says also but doing it this way i dont quite understand how the employee gets his £180 back

The employee gets his £180 back from the company (yourCo).

YourCo gets the VAT back by reclaiming it from HMRC.

Because you're on the flat rate scheme, you don't reclaim VAT on individual expenses. The 'profit' from the flat rate scheme is intended to cover the VAT on purchases.

[onthegreen]

Because the two transactions are distinctly different - not connected at all. One is an expense to your business and the other is a VAT input. You are trying to tie them together to reconcile them, that is not the way it works.

Yes, i fully understand that. i just would like to see the entire use case. Again, on the understanding that they are not at all connected.

[mudskipper]

It is funny because all the examples i read say that you should include your expense in the invoice net of VAT, in my example, £150, and then charge the VAT you charge. That is what my accountant says also but doing it this way i dont quite understand how the employee gets his £180 back

Did you read tractor's link?

Particularly the section headed 'What isn't a disbursement for VAT purposes'

YourCo charges VAT because you've 'added value' to the expense.

What examples have you read? Links?

[tractor]

...

It is funny because all the examples i read say that you should include your expense in the invoice net of VAT, in my example, £150, and then charge the VAT you charge. That is what my accountant says also but doing it this way i dont quite understand how the employee gets his £180 back

Because the two transactions are distinctly different - not connected at all. One is an expense to your business and the other is a VAT input. You are trying to tie them together to reconcile them, that is not the way it works.

[onthegreen]

Yes, yourCo either charges VAT on the expense incurred inc VAT, or takes the hit. The 'profit' on the flat rate scheme is intended to cover that.

One possibility for the future to avoid double VAT is for the client to pay the expense direct if they and yourCo are happy to do this.

It is funny because all the examples i read say that you should include your expense in the invoice net of VAT, in my example, £150, and then charge the VAT you charge. That is what my accountant says also but doing it this way i dont quite understand how the employee gets his £180 back

[mudskipper]

The expense is an agency fee the consultant paid to rent a flat

Yes, yourCo either charges VAT on the expense incurred inc VAT, or takes the hit. The 'profit' on the flat rate scheme is intended to cover that.

One possibility for the future to avoid double VAT is for the client to pay the expense direct if they and yourCo are happy to do this.

[onthegreen]

Yes. I assume the OP is talking about travel expenses, but who knows...

The expense is an agency fee the consultant paid to rent a flat

[onthegreen]

Which is another can of worms and potentially, you should have charged the client £180 + VAT (£36) = £216

HMRC's view This has been argued here forever and I have yet to find an agent that actually understands it

Thats what i think as well. The 216 goes to my company account who need to pay HMRC the VAT (£36) and then £180 to he employee who recovers exactly the amount he paid.