VAT and working for non-VAT registered companies

**malvolio** · 3 May 2012, 23:27

Originally posted by swamp View Post

If you have a contract through an agency for a bank, say, then does the bank get to reclaim any VAT?

Banks and insurance companies and charities cannot register for VAT, so do they lose the full 20% or just the 20% of the agency margin? For example a bank hires a contractor by the day:

Contractor is on £500 + VAT
Agency charges 15% (£75) + VAT
Bank pays £690 (inc VAT)

Does bank reclaim full £115 from HMRC? Or does bank reclaim £15 from the agency margin? Or do they reclaim nothing and pay the full £690?

Firstly, why should you care? You get your invoiced amount of £600

Secondly, banks are run by people who understand finance. Your contract probably ends up with a subsidiary company to the bank that can reclaim VAT.

However, thirdly,there is an interesting debate about whether or not the agency fee is subject to VAT or the whole agency-fee-plus-contractor-invoice is. As far as I know, that one is still under discussion, the legal arugument centering on your invoice value from the agency is not a value add the customer and so is not VATable. That one may run and run...

Incidentally, you should always remember that the "margin" is not the agency's, it's yours. They get the full amount, you get a percentage.

**v8gaz** · 4 May 2012, 07:39

Banks can reclaim a percentage of their VAT, I believe it's around 3%, but that's all. But they expect that, and plan for it, so as Mal says, whataboutit?

**swamp** · 4 May 2012, 08:34

I don't work at a bank and this situation is purely hypothetical.

What interests me is the total tax take on the transaction when the end client cannot register for VAT. Does the Treasury really end up with significantly less money when a worker operates through a 'personal service company' (outside IR35) and the end client is not registered for VAT?

VAT and working for non-VAT registered companies