Reply to: New contract: VAT expenses question

[TheCyclingProgrammer]

Disbursements is the HMRC heading that covers some of the recharging issues IF you are VAT registered and the notice even uses recharged expenses as an example. It is relevant. Disregard it and it WILL come up for discussion in a VAT inspection.

I know what disbursements are and what things aren't, however there is nothing in VAT legislation that says that non-disbursements have to be re-charged at gross - you can re-charge them at whatever net price you like (or the client agrees to) - gross, net of the original input VAT, with a 20% discount or a 50% markup, so long as you charge VAT on top of that figure. Likewise, if the original expense had no VAT (exempt/zero-rated), you still charge VAT on top.

So like I said, disbursements aren't really relevant here. It's clear that the expenses OP are talking about aren't disbursements, so the only point of contention is what net price they are re-billed at. OP wants to bill gross, agency insists net of the original VAT. It's a commercial decision, nothing more.

[tractor]

..

Not sure what disbursements have got to do with this. The contract isn't asking for rebilled expenses to be treated as disbursements, it's just asking for them to be rebilled at net cost, so when you add your own VAT on top, they end up paying the same gross cost that you did.

Completely legitimate and nothing to do with VAT regulations. It's no different to them asking for expenses to be rebilled at fixed rates or with a discount.

Disbursements is the HMRC heading that covers some of the recharging issues IF you are VAT registered and the notice even uses recharged expenses as an example. It is relevant. Disregard it and it WILL come up for discussion in a VAT inspection.

[captainham]

I see where you are coming from but that's not strictly true. You aren't losing out in real terms if you rebill net of VAT, because the FRS surplus is designed to cover your irrecoverable input VAT in situations like this.

I agree to a point...but let's not forget that FRS is only designed for those businesses whose purchases and rebilling amounts to a small % of their sales revenue. Of course there's a tipping point where FRS starts to cost you...it might be ok to stick with this for a short contract (to avoid hassle of leaving FRS then waiting a year before you can rejoin), but any longer term contract that could end up costing you, it's worth considering switching to traditional VAT.

[TheCyclingProgrammer]

I have never had an agent that understands the law on disbursements and what is and is not taxable, they invariably need educating....

The VAT man says the following...

"What isn't a disbursement for VAT purposes

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."


If you want the whole chapter and verse go here.

If you want to recheck it, ask your accountant and I'm sure our resident accountants will be along to confirm it soon

Not sure what disbursements have got to do with this. The contract isn't asking for rebilled expenses to be treated as disbursements, it's just asking for them to be rebilled at net cost, so when you add your own VAT on top, they end up paying the same gross cost that you did.

Completely legitimate and nothing to do with VAT regulations. It's no different to them asking for expenses to be rebilled at fixed rates or with a discount.

[TheCyclingProgrammer]

Being VAT registered, FRS or otherwise, does not affect your ability to charge your client whatever you want (within the confines of the contract, of course).

I wasn't suggesting it does. I was just saying that if he was on the FRS, this particular clause in his contract would also result in a small loss on each expense, but not a net loss if you account for the FRS surplus.

Tying to rebill expenses for the gross amount when you're VAT registered (often beneficial on the FRS) is also what tends to lead to agents banging on about "charging VAT on VAT" because they don't understand how VAT works.

The business rationale for that is that I'm on FRS therefore charging less than the full amount (with VAT) means I'd be losing out

I see where you are coming from but that's not strictly true. You aren't losing out in real terms if you rebill net of VAT, because the FRS surplus is designed to cover your irrecoverable input VAT in situations like this.

[northernladuk]

I had to understand what the contract cause was saying before I could search for it!

Not really, just pick some keywords. I think I used expenses net vat and found those two items. Took me longer to write the reply than it did find it.

I think you have that arse about face anyway, you go searching to find out what the clause means so you can understand it.

[kingcook]

Would you adam and eve it...

Nah, gav'ner

In't t'internet wonderful.

Eeeeee lad yer a northerner.

[tractor]

...

I have never had an agent that understands the law on disbursements and what is and is not taxable, they invariably need educating....

The VAT man says the following...

"What isn't a disbursement for VAT purposes

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."


If you want the whole chapter and verse go here.

If you want to recheck it, ask your accountant and I'm sure our resident accountants will be along to confirm it soon

[SpontaneousOrder]

Huh! Bet I've been at it longer than you! :ladybugs:

Just not been in this situation before - not vat registered and this contract clause.

It's NLUK's catchphrase, so not (necessarily) a slight at you

[infosec]

I bet you haven't, but I'm not going to argue? If you have been, then I would be very surprised considering the naivety of the original question line.

My comment wasn't intended to insult, but we get questions like this so often from people who can't be bothered to read the carefully compiled hyperlinks conveniently listed to the right hand side of the forum, and who don't take their time to read the F.A.Q.'s? If you took offence then for that I apologise...

It's called being too lazy, like "Let me Google that for you?"

The FRS couldn't be more simple and is the closest you are going to get to "Free Money".

I am very pleased that NLUK had taken the trouble. He is getting soft 👷

No offence taken at all mate - I appreciate all comments even those with a grumpy tone ;-p

As I said, I was trying to figure out what the contract clause actually meant - my eyes are blurry and my mind racing, it wasn't computing. I've previously been frs'ed for 5+ years, always billed expenses/vat plus 5%.

Lazy? I am sitting in a vehicle in a shed in the countryside with mobile broadband trying to organise a new contract, travel arrangements and accommodation having spent all week getting past credit & reference checking! ;-p

I'd say its highly efficient to reach out to some of my kind hearted fellow consultants and listen to any advice they can offer.... Lazy would be to just sign the contract and go to bed! ;-p

[infosec]

If it's simplicity you want, then surely you want to be on FRS...?

Not everybody's lives are simple and clean cut mate... it was a sound decision based on my personal circumstances at the time I setup the company and I will register soon as I know the benefits.

[Scruff]

I bet you haven't, but I'm not going to argue? If you have been, then I would be very surprised considering the naivety of the original question line.

My comment wasn't intended to insult, but we get questions like this so often from people who can't be bothered to read the carefully compiled hyperlinks conveniently listed to the right hand side of the forum, and who don't take their time to read the F.A.Q.'s? If you took offence then for that I apologise...

It's called being too lazy, like "Let me Google that for you?"

The FRS couldn't be more simple and is the closest you are going to get to "Free Money".

I am very pleased that NLUK had taken the trouble. He is getting soft 👷

[captainham]

Was on it previously with my old Ltd Company - few good personal reasons not to be up until now with the new one.... simplicity being one of them....

If it's simplicity you want, then surely you want to be on FRS...?

[captainham]

Note: if you were on the FRS, you would be in a similar position as you'd be unable to reclaim the input VAT on the expense, or re-bill it to the client either, but you'd still be better off as your FRS surplus covers your input VAT (and still normally results in an overall profit). Another good reason to get on the FRS then...

Being VAT registered, FRS or otherwise, does not affect your ability to charge your client whatever you want (within the confines of the contract, of course).

If this were my contract I was reviewing (and not signed yet), I'd be looking to renegotiate so that I recharge the full expense (including VAT), then of course with 'my own' VAT on top of that. The business rationale for that is that I'm on FRS therefore charging less than the full amount (with VAT) means I'd be losing out; of course there would be no need to explain it in that much detail to the agency as ultimately it's none of their business, it would be a decision taken by the director of a company which is in the best interests of said company.

[infosec]

Another one not cut out to be a Contractor?

Huh! Bet I've been at it longer than you! :ladybugs:

Just not been in this situation before - not vat registered and this contract clause.