VAT on expenses or not?

[Moss Piglet]

I am VAT registered and on the Flat Rate Scheme.

I am confused whether to add VAT to expenses where the VAT is already paid at source.

An example. I take a taxi to the airport and pay the taxi driver 100 pounds and this includes VAT. So the taxman has received 16.66 in VAT from the taxi company as ex VAT the fare is 83.33. As I paid from my pocket I claim the money back from my client who pays me 100 as that is what I paid the taxi company.

The question is: Do I need to claim VAT on the 100 to my client so that I receive 120 from the client? My accountant is saying that I need to pay VAT on the 100 I received from my client dispite no profit being made or value added. This effectively means HMRC are getting paid VAT twice. It doesn't seem correct to me and given that I didn't add VAT to the client I am now faced with paying VAT from my company even when VAT on the original service was paid. I am really confused by this.

Thanks in advance for any insight into this.

[NotAllThere]

1. My accountant is saying...

2. It doesn't seem correct to me...

Are you a qualified accountant? No? Refer to point 1.

[northernladuk]

Use the Freeagent Auto VAT option?

[Hobosapien]

It depends on the arrangement you made with the client to reimburse your expenses.

The way you describe it you are getting the expenses paid from the client via your Ltd rather than directly.

So if you are invoicing the client you add the expense item as an invoice item and charge VAT on the invoice total. This would then be the £100 + VAT you elude to. You would then be reimbursed the £100 by your Ltd, so not personally losing out. Your Ltd would pay the VAT on the invoiced amount as normal.

If you were getting reimbursed personally direct from the client then you just get the £100 and no VAT to pay yourself so you're not losing out.

[Maslins]

How much you recharge expenses at is a commercial decision between you and your client. Eg some people will subsidise them, others will add a mark up. However, normally people would recharge at cost.

I would suggest if you physically paid £100 for the taxi, and you're confident the taxi driver/firm was VAT registered (are you sure?), then the real cost was £83.33+VAT. I would therefore suggest you recharge to your client at £83.33+VAT.

The fact you're on the FRS does indeed mean the taxi would actually cost your company £100...but my personal opinion on that is that FRS is a choice you make to suit your circumstances, so doesn't seem fair to recharge the cost to the client at a higher rate because of your company's VAT choice. If you're having lots of VATable costs then it may well make sense to leave the FRS.

[Moss Piglet]

Thanks to all who have contributed.

Homosapien raises a great point. If I request expenses to be paid directly to me and not the company thus avoiding the need to charge VAT twice. VAT is paid at source so the VAT man is happy and I don't have to charge additional expenses to the client.

Thanks all.

[malvolio]

VAT isn't paid twice and until it hits someone who isn't VAT-registered some time down the consumer chain it doesn't really matter anyway.

But the point is you add VAT to the added value your are providing by supplying your services (the clue is in the name) so whatever you shell out to provide that service is liable for VAT. Including any embedded VAT.

And if you're picking up VATable expenses, are you really sure FRS is a good idea, given it's marginal gains these days?

[Lance]

VAT on a taxi?

Does the taxi receipt have a VAT number? I use a lot of taxis I've never, ever seen a VAT receipt as almost all taxi drivers are self-employed and below the threshold.

CAVEAT: Some of the large minicab firms where you pay in advance, rather than cash to the driver are VAT registered but they are expensive so I don't use them.


As for the FRS thing. If you're reclaiming from a client then you do tend to lose out a bit. Suck it up or change to the normal VAT scheme (which you should do after year 1 now anyway).

[TheCyclingProgrammer]

It's completely between you and your client whether or not you recharge your expenses to them at net or gross cost. You add VAT to whatever you choose. This has been answered on here a million times before and there's no point in repeating what has been said in every one of those threads, please do a search.

[TheCyclingProgrammer]

The fact you're on the FRS does indeed mean the taxi would actually cost your company £100...but my personal opinion on that is that FRS is a choice you make to suit your circumstances, so doesn't seem fair to recharge the cost to the client at a higher rate because of your company's VAT choice. If you're having lots of VATable costs then it may well make sense to leave the FRS.

I agree (though I used to feel differently). People forget that even though they don't directly recover the VAT on their inputs, they do so indirectly via their FRS surplus, so if the agreement was to recharge at cost I would recharge at net + VAT. If your FRS surplus isn't covering your input VAT over the course of the year, as you say you should probably consider leaving (unless you think the slight loss is worth the slightly less admin work).