Umbrella - day rate & VAT mistake - please advise

[TheFaQQer]

I've done a fair bit of reading around umbrella sites, freelance guides, and googling after this problem came to light yesterday and nowhere have I seen any mention of this sort of issue. Maybe it doesn't occur too often, but for a contracting newbie it would be a good thing to add to a beginners checklist: ensure the VAT situation with your day/hourly rate is understood and agreed by all parties.

Yep. I got a shock when my first invoice arrived - it was 17.5% higher than I thought I'd agreed

I had to ring a mate and ask if that was "normal".

[swedishchef]

An update: after talking to the umbrella co and client finance department, everyone immediately agreed that the day rate should be been agreed ex-VAT in the first place, and the client has agreed to pay the originally agreed day rate and for the VAT on top. So all is well! My wife is very pleased. I think it helped that the client wants her to go back - they today asked her to extend by another day, and they're still hoping to get her back next year too. I'll have to tell her to put her day rate up!

I've done a fair bit of reading around umbrella sites, freelance guides, and googling after this problem came to light yesterday and nowhere have I seen any mention of this sort of issue. Maybe it doesn't occur too often, but for a contracting newbie it would be a good thing to add to a beginners checklist: ensure the VAT situation with your day/hourly rate is understood and agreed by all parties.

[LisaContractorUmbrella]

Thanks for your reply administrator. Your conclusion is what I expected, unfortunately.

For convenience - it was really only expected to be a one-off short contract so an umbrella seemed a good idea. As the contract came to the end, they said that they want her to go back in the New Year and are willing to flex hours to suit our childcare arrangements. Perhaps, if she does that then a Ltd Co is the way to proceed - my wife wouldn't be earning enough to be VAT registered either!

Your wife would need to consider IR35 if she decides to go the Ltd Co route - there's loads of info on the site

[swedishchef]

Thanks for your reply administrator. Your conclusion is what I expected, unfortunately.

Any reason why working through a brolly rather than Ltd?

For convenience - it was really only expected to be a one-off short contract so an umbrella seemed a good idea. As the contract came to the end, they said that they want her to go back in the New Year and are willing to flex hours to suit our childcare arrangements. Perhaps, if she does that then a Ltd Co is the way to proceed - my wife wouldn't be earning enough to be VAT registered either!

[administrator]

Evening You said:

... Unfortunately, it seems that the client sent a copy of the contract to my wife to agree but she didn't pick up the fact that the quoted day rate included VAT...

If the contracted quoted inc VAT and this was signed then that's what it is. If the contract is coming to an end soon then she could take this up with the agent / clientco manager and state that it was an oversight with the VAT and she expected to be taking home more and negotiate a rise. She will either get it or she won't - assuming that the contract will be renewed...

Any reason why working through a brolly rather than Ltd?

[swedishchef]

Hi all,

Posting here on behalf of my wife who is working in her very first freelance role for a large, well known UK company, through a reputable umbrella company. She has a problem, which is probably her fault but needs advice:

She agreed a day rate with the client verbally and then by email (there was no mention of VAT) for which she expected to be paid (minus PAYE and NI, and the umbrella margin of course). The umbrella has charged VAT on top of the day rate and the client has rejected the first invoice, saying that they expected VAT to be included in the day rate. Unfortunately, it seems that the client sent a copy of the contract to my wife to agree but she didn't pick up the fact that the quoted day rate included VAT - naively, my wife thought that would make no difference since she didn't pay VAT (and she didn't ask me... ). Annoyingly, when submitting the invoice she did query with the umbrella as to whether the VAT would be an issue but they said it would be added on top, not taken out of the day rate amount.

So, while this is probably ultimately my wife's fault for not clarifying whether the day rate was inc or ex VAT, we are wondering what the best course of action is. She is gutted to be bringing home 20% less than expected.

I thought contractor rates were usually agreed ex-VAT. In my corporate experience of budgeting/finance we never deal in inc. VAT figures - we talk net amounts and assume VAT will be added. So this is all strange and a misunderstanding in my mind. I'm annoyed that the umbrella didn't pick up on this - I'd have thought they should have.

My wife's contract is ending soon but the client wants to bring her back next year. So we don't want to jeopardise that, but I'd have thought that they'd want to do the right thing by her. It's a mess, all advice welcomed. Thank you.