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The Right Way to Invoice for Expenses

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    The Right Way to Invoice for Expenses

    I normally just charge a day rate + VAT, which includes all expected expenses - however, recent client has offered to pay expenses for travelling as it's quite some distance.

    They have suggested that I pay for the flights, send them the receipt, and they'll reimburse directly via a bank transfer. This doesn't feel right to me at all - whether I do this via my ltd co or via my personal bank account.

    Rang HMRC and they were about as much use a chocolate fireguard - they basically said "just do what you like, doesn't bother us". My accountants and various online sources have provided conflicting information regarding how to charge the client.

    How I would expect it to work:

    * I incur expenses via my ltd co and keep receipts
    * I "recharge" the client for the costs via invoice (with added VAT)
    * Client pays bill
    * I claim VAT back on my expenses
    * Client claims VAT back on my invoice only

    As far as I understand there is no circumstance where I should be giving the source receipts to the client or agency?

    The "recharge" bit is where I'm getting conflicting info. This is NOT a disbursement - i.e. an expense I've incurred on behalf of the client (such as purchasing a web domain on their behalf). Travel expenses are specifically outlined as a recharge on this page.

    I can see three potential options:

    * Recharge the client as per above (which essentially taxes them twice, but *seems* to be the right way to do it?)
    * Invoice the client for 1 day + VAT (which should cover my expenses, but even if it doesn't I'm comfortable with it)
    * Get the client to pay for the expenses directly - this would be a logistical nightmare and removes control away from me entirely.

    Any experiences rebilling expenses to clients via a ltd co, NOT using an agent or client's internal expenses system (*shudder*)?

    If there's no risk with the client's preferred method, I'm fine with it as this isn't a money making exercise. However, there will be a few thousand pounds of expenses over the course of the engagement and I'd like to be 100% clear and comfortable with the terms before I commit - don't want to be audited and hit with an unexpected VAT bill.

    #2
    This isn’t that complicated. Don’t overthink it.

    You are correct that these are recharges not disbursements, so what you add to your invoice to cover your expenses is up to you. You could add a flat charge or recharge exactly what it cost you or even add a margin. It depends on what your client agrees or what is in your contract.

    As you mention reclaiming the VAT on your expenses I assume you’re on the standard scheme. Therefore the net cost to you is the net cost before VAT and this is what I would recharge. This makes the whole thing VAT neutral for you and your client.

    So for example: you charge £2500 for a week of services and also incur travel costs of £240 inc VAT.

    You personally expense claim the £240 from YourCo which puts it back in your pocket (tax free as it’s business travel).

    YourCo invoices the client:

    Services: £2500
    Expenses: £200
    VAT £540

    Your client reclaims the £540 on their VAT return.
    YourCo pays HMRC £500 - £540 output VAT less the £40 input VAT incurred on the original expense.

    The only quirk here is if the original expense had no VAT, you would still add VAT to it on your invoice as it’s just part of your overall fee and is standard rated. It makes no difference to the client.

    Where people tend to run into issues is when they are on the flat rate scheme and due to not being able to directly recover the input VAT, they chose to recharge the gross cost (so in the above example the recharge would be £240 + VAT). This is a valid approach - you’re effectively adding a margin to your costs to cover the VAT - but a lot of clients and agents don’t like it (because it costs them more than if you recharge the net). Forunately you don’t need to worry about this. Just recharge the net cost.
    Last edited by TheCyclingProgrammer; 13 March 2018, 20:40.

    Comment


      #3
      Exactly as TCP says.

      If the client doesn’t want to pay VAT on VAT then they should book and pay for the travel and hotels directly.
      In no circumstance should you try and class these expenses as a disbursement no matter how attractive that may seem.
      See You Next Tuesday

      Comment


        #4
        Originally posted by Lance View Post
        Exactly as TCP says.

        If the client doesn’t want to pay VAT on VAT then they should book and pay for the travel and hotels directly.
        In no circumstance should you try and class these expenses as a disbursement no matter how attractive that may seem.
        There is no “VAT on VAT” in my example. If the original expense cost £200 + VAT and you’ve agreed to recharge expenses “at cost”, you should recharge the client the exact same £200 + VAT. It makes absolutely no difference if the client pays directly or you pay and recharge as the net cost is the same.

        Handling recharges in this way is what most clients would expect. Disbursements are largely a red herring as most of the time the end result is the same as when you recharge.

        Generally speaking, correctly handling disbursements (where you simply pass through the cost without accounting for either input or output VAT) only matters where the original cost didn’t have any VAT and the client is unable to reclaim VAT. This is because you have to add VAT to recharges regardless of whether there was VAT on the original cost, whereas with disbursements you don’t. But if the client can reclaim the VAT it doesn’t matter if it’s a £200 disbursement with no VAT or a £200 + VAT recharge - it costs the client £200 either way.

        TLDR; OP was wrong to say the client would be “taxed twice” because you simply invoice them for the same net cost you incurred.

        Also, as for receipts, again this is a contractual issue. Your contract may stipulate that any recharged invoices are accompanied by receipts. What you should avoid is using the clients expense claim process. That is for their employees.
        Last edited by TheCyclingProgrammer; 14 March 2018, 02:55.

        Comment


          #5
          Hard not to overthink it when there's conflicting info everywhere

          Well, I put forward some suggestions to the agent last night - I'll see what they come back with. Thanks for your responses.

          Comment


            #6
            I see no problem in providing receipts to show that yourCo has incurred the expense. Freeagent includes an option to include recharged receipts when you create your invoice.

            Comment


              #7
              Any experiences rebilling expenses to clients via a ltd co, NOT using an agent or client's internal expenses system (*shudder*)?


              Yes, mostly really really simple

              Also gets round 24 month rule + IR35 if your contract is caught when new rules come into the private sector

              Comment


                #8
                Originally posted by tarbera View Post
                Any experiences rebilling expenses to clients via a ltd co, NOT using an agent or client's internal expenses system (*shudder*)?


                Yes, mostly really really simple

                Also gets round 24 month rule + IR35 if your contract is caught when new rules come into the private sector
                I work remotely for the vast majority of my contracts - plus I've never had a project last longer than maybe 1.5 years - so the 24 month rule doesn't come into it.

                Comment


                  #9
                  This is exactly what I do and I suspect the majority here. I book though their system, pay for it and then invoice plus VAT. It's simple.

                  Comment


                    #10
                    Originally posted by radish2008 View Post
                    This is exactly what I do and I suspect the majority here. I book though their system, pay for it and then invoice plus VAT. It's simple.
                    Not quite as simple if a client expects something different - i.e. in this case they expect to pay the expenses without incurring additional tax. Makes no difference to the baseline at the end of the day, other than HMRC get a little bit more money out of us.

                    I just need to be sure I'm doing it right before I push the client one way or another.

                    Comment

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