Expenses charging

[mir333]

Hi Everybody

I have a question about how to correctly invoice expenses. This is the situation:
I'm an IT consultant with a limited company. I contract with service providers and they usually send me to end customers on site. I always agree that the expenses are covered by the company and are charged on top.
The question is how to invoice this. I was collecting my receipts and was putting the total of all my expenses on the invoice. How shell I correctly invoice this.
1. Shall I treat it as disbursements and just add it to the total of my invoice.
2. Shall I put the items less VAT and then add the VAT to the total. (the VAT is added only once)
3. Shall I put the total on the invoice as one item and then add the VAT on the total (The VAT is added twice - once when I did the purchase and then when I put it on the invoice)

My accountancy says it's the option 3 and referred me to https://www.gov.uk/guidance/vat-cost...t-calculations

It looks bit odd to me that the VAT is applied on items where VAT was already paid.

How are you doing it?

Thanks!

[PerfectStorm]

Hi Everybody

I have a question about how to correctly invoice expenses. This is the situation:
I'm an IT consultant with a limited company. I contract with service providers and they usually send me to end customers on site. I always agree that the expenses are covered by the company and are charged on top.
The question is how to invoice this. I was collecting my receipts and was putting the total of all my expenses on the invoice. How shell I correctly invoice this.
1. Shall I treat it as disbursements and just add it to the total of my invoice.
2. Shall I put the items less VAT and then add the VAT to the total. (the VAT is added only once)
3. Shall I put the total on the invoice as one item and then add the VAT on the total (The VAT is added twice - once when I did the purchase and then when I put it on the invoice)

My accountancy says it's the option 3 and referred me to https://www.gov.uk/guidance/vat-cost...t-calculations

It looks bit odd to me that the VAT is applied on items where VAT was already paid.

How are you doing it?

Thanks!

It's the last one - 'VAT twice' as you put it. The simple rule is that you must charge VAT on the expenses that you put to clients. It looks weird, but they'll write that off on their own accounts, so everyone's happy.

Plus, if you happen to be on the flat rate VAT, you get to make some more money for your trouble!

[Lance]

Number 3

[TheCyclingProgrammer]

Please try searching because this has been asked about a million times.

1. They are not disbursements
2. Maybe
3. Maybe

There is no correct answer. What rate you recharge your expenses at is between you and your client. If you have agreed to recharge whatever it costs you then I believe you should charge the net cost (and add VAT to this). This is because you can reclaim the VAT so the cost to you is the net amount. This makes the whole thing VAT neutral.

If you’re on the FRS you may prefer to recharge the gross amount and add VAT on top of that. The client might not be happy with this because it costs them more. Arguably you should still recharge the net amount even on the FRS because the input VAT is covered by your flat rate surplus. But it’s up to you if your client is happy.

[TheCyclingProgrammer]

It's the last one - 'VAT twice' as you put it. The simple rule is that you must charge VAT on the expenses that you put to clients. It looks weird, but they'll write that off on their own accounts, so everyone's happy.

Plus, if you happen to be on the flat rate VAT, you get to make some more money for your trouble!

Why would the clients be happy at paying a premium on our expenses? It costs them more.

If you incur an expense of £100 + VAT and you’re on the standard scheme then it has cost you £100. So you should also charge your client £100 + VAT unless you’ve agreed that you’ll be adding a markup. The net cost to the client is also £100.

If you charged £120 + VAT then it’s going to cost them £20 more and you’ll be making a £20 profit. Again, this is fine if that’s what you’ve agreed with the client.

[malvolio]

Why would the clients be happy at paying a premium on our expenses? It costs them more.

If you incur an expense of £100 + VAT and you’re on the standard scheme then it has cost you £100. So you should also charge your client £100 + VAT unless you’ve agreed that you’ll be adding a markup. The net cost to the client is also £100.

If you charged £120 + VAT then it’s going to cost them £20 more and you’ll be making a £20 profit. Again, this is fine if that’s what you’ve agreed with the client.

For starters, look up the definition of Value Added Tax.

You have added value to your costs and the client's business by doing whatever it is you do. Everything you put on the invoice therefore has to have VAT added by definition. Therefore the concept of "VAT on VAT" simply doesn't exist.

You can of course charge whatever you like, so if you are more comfortable taking the VAT value out of your invoice and handling it through your own accounts, then that's fine, if unnecessary.

VAT is no part of your business income - expect for FRS people and in that case you can't manage VAT anyway - so who sends the balance of input and output VAT to the taxman is irrelevant, as long as it gets sent.

[TheCyclingProgrammer]

For starters, look up the definition of Value Added Tax.

You have added value to your costs and the client's business by doing whatever it is you do. Everything you put on the invoice therefore has to have VAT added by definition. Therefore the concept of "VAT on VAT" simply doesn't exist.

You can of course charge whatever you like, so if you are more comfortable taking the VAT value out of your invoice and handling it through your own accounts, then that's fine, if unnecessary.

VAT is no part of your business income - expect for FRS people and in that case you can't manage VAT anyway - so who sends the balance of input and output VAT to the taxman is irrelevant, as long as it gets sent.

Do you have to work hard at being that patronising or does it just come naturally to you?

1. Who mentioned VAT on VAT? Not me.
2. Obviously you charge VAT on your recharged expenses. Nobody has said otherwise. The only question is what you recharge.

You can’t charge “whatever you like”. You can charge whatever you have contractually agreed to charge your client for any expenses you incur.

If you’ve agreed to recharge your expenses “at cost”, then you should recharge them at the original net cost plus VAT and I think that’s what most clients would expect. Why would you pass on the cost of the original VAT when you’re already able to reclaim it? It doesn’t make any sense. Input VAT is not a cost, just as output VAT is not income.

[gazelle]

A few months back, my client has allowed me to stay in hotels during the week and invoice them. I asked my agency how to invoice this and they said to put expense items Net and then add VAT (so Number 2 in your list).

Reading around previous posts, there are people who argue both for Net+VAT and Gross+VAT - the latter if you can get your agency to agree.

Interesting point reading the posts is re: FRS which I'm on - I'll be staying hotels every weeks for the foreseeable future - so I'll be losing money with FRS compared to going standard VAT.

Good tip from reading the posts was to use hotels.com or the like - if you want a VAT invoice then pay at hotel - otherwise invoice you get from hotels.com doesn't have VAT - thus can put full amount on invoice.

OP here are some posts that may help:

https://forums.contractoruk.com/acco...-client-2.html

https://forums.contractoruk.com/acco...billing-2.html

[NotAllThere]

A few months back, my client has allowed me to stay in hotels during the week and invoice them. I asked my agency how to invoice this and they said to put expense items Net and then add VAT (so Number 2 in your list).

Your agent is not your accountant.