Expenses and VAT confusion Expenses and VAT confusion
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  1. #1

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    Default Expenses and VAT confusion

    MyLtd (contracted with) MyClient (chosen partner of) ABigOrg (provides consultancy to) TheirCustomerCo.

    Expenses are occurred because of travel etc. Which are eventually paid by TheirCustomerCo. But I have to put them in my invoice to MyClient.

    Since I am on FRS for VAT, I am out of pocket 14.5% from expenses (which sometimes could be £100s).

    What's the right way to sort this out?

    Accountant says, simply add 20% VAT on expenses too.

    PS I have to separately send over expenses receipt and details.

  2. #2

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    Your accountant is correct. Add VAT to your expenses on the invoice.
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  3. #3

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    Been asked since the dawn of time.

    Expenses vat site:contractoruk.com/forums - Google Search

    Should you really still be on FRS? Most of us aren't.
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    Whooohoo I now have £867 as I pay myself £1 each time this question is asked


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    The whole point of FRS for VAT is to simplify the operation of VAT for businesses who have low input of VAT. In other words those who do not buy services (such as expenses) or buy from non VAT sources.

    In reality the additional VAT retained should cover for any loss in operating the scheme, however as the %age has narrowed in recent years it is pretty tight.

    You could simply add 20% to the expenses, which is in effect VAT on VAT but a hot financial controller in your client org will very quickly stop that.

  6. #6

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    Quote Originally Posted by mdhd View Post
    Since I am on FRS for VAT, I am out of pocket 14.5% from expenses (which sometimes could be £100s).

    <snip>

    Accountant says, simply add 20% VAT on expenses too.


    Your accountant is right. But I wouild question why your accountant thinks 14.5% FRS rate is correct.

    HINT: It's not... You should be on 16.5% (with a 1% discount during your first year of trading).
    On that basis it's not worth being FRS.

    As for your expenses... that's another reason to not be on FRS.

    You shouldn't be on FRS (unless you sell hardware, which you don't do you?)

    Lots come here and think they meet the rules to be on 14.5%. They're all wrong. They also should not be on FRS.


    CAVEAT: Of course if you're on FRS to make life easier for your accountant, that might be a reason. But for me, making the job of an accuntant easier is not my problem.
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    Quote Originally Posted by Lance View Post
    Your accountant is right. But I wouild question why your accountant thinks 14.5% FRS rate is correct.

    HINT: It's not... You should be on 16.5% (with a 1% discount during your first year of trading).
    On that basis it's not worth being FRS.

    As for your expenses... that's another reason to not be on FRS.

    You shouldn't be on FRS (unless you sell hardware, which you don't do you?)

    Lots come here and think they meet the rules to be on 14.5%. They're all wrong. They also should not be on FRS.


    CAVEAT: Of course if you're on FRS to make life easier for your accountant, that might be a reason. But for me, making the job of an accuntant easier is not my problem.

    Computer and IT consultancy or data processing 14.5

    Still trying to work out what's the best way forward.

  8. #8

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    Quote Originally Posted by mdhd View Post
    Computer and IT consultancy or data processing14.5

    Still trying to work out what's the best way forward.
    Lance is correct, unless you have goods costing more than £1k or 2% of turnover a year:

    VAT Flat Rate Scheme : Work out your flat rate - GOV.UK

    It's not expenses total, it's goods.

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    Quote Originally Posted by mdhd View Post
    Computer and IT consultancy or data processing 14.5
    Think again.
    Read the rules, and pay careful attention to "Limited Cost Trader"



    Then sack your accountant for missing this. I take it your accountant is not a contractor specialist?
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    What makes you think you’re “out of pocket” on your expenses? Because you can’t directly reclaim the VAT? What do you think your flat rate surplus (the difference between the VAT you charge and the flat rate you pay to HMRC) is there for?

    If your flat rate surplus does not cover the input VAT on your expenses then maybe you shouldn’t be on the flat rate scheme. As others have said there’s a high possibility you should be on the limited cost trader rate which will barely cover any of your input VAT so unless you’re happy making a loss on your VAT recovery for the sake of a bit less paperwork I’d get off the FRS pronto.
    Last edited by TheCyclingProgrammer; 3rd February 2020 at 14:27.

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