Brolly question: what happens to the VAT?

[Nicely Nicely]

When your LtdCo buys a laptop (for you to use at client sites, at LtdCo office and evening and weekends when you use it to further develop your technical skills), LtdCo claims the VAT back and keeps it as profit.

When I buy a laptop and try to put it through the expenses with BrollyCo, it becomes THEIR property! So they claim the VAT back, just as they with all the other VAT on the hotels, meals, travel, etc. Last month, the VAT on my expenses was about £400.

So, presumably, the brolly gets to keep the VAT on all my expenses, yes?

Yet I have to pay them a hefty monthly charge for the privilege.

Am I missing something here?

[LisaContractorUmbrella]

Yes you are missing quite a lot actually. VAT doesn't work like that at all - VAT is added to sales ledger invoices and is paid by the company you supply your goods or services to. The amount that has been paid in VAT is payable to HMR&C and forms your 'output tax'. The VAT on invoices that are sent to you - either cash book or purchase ledger - will be payable by you to the supplier but the total amount - your 'input tax' is deducted from your 'output tax', the balance is payable to HMR&C.

VAT will only be a consideration if a contractor's expense is chargeable to the agency or client; if it is not then no VAT can be claimed against the umbrella company's output tax as the purchase has not been recorded in their books. If an expense is chargeable then it will form part of the sales invoice that will go to your agency or client and therefore adds to the umbrella company's output tax. Again, there is still no purchase by the umbrella company and therefore there can be no offset of VAT.

[expat]

Is this what happened?

You buy a laptop that costs 1,175 including VAT. I.e. it really costs 1,000.
Your brolly reimburses you the whole 1,175.
They claim 175 VAT back from HMRC.
They also book 1,000 as an expense against the income from your contract. The amount available for salary is therefore reduced by 1,000 (not by 1,175).

So the brolly didn't get to keep the VAT, they in effect passed it on to you. This is evident from the fact that they reimbursed you 1,175, but only reduced your profit by 1,000.

[Nicely Nicely]

Is this what happened?

It's more confusing than that. They now own the laptop and I didn't pay tax on 90% x £1,175 (I think) of my salary. (They keep 10% for admin costs.)

Apparently I will be able to buy this equipment from them at some point in the future for an amount of money I do not know.

[expat]

It's more confusing than that. They now own the laptop and I didn't pay tax on 90% x £1,175 (I think) of my salary. (They keep 10% for admin costs.)

Apparently I will be able to buy this equipment from them at some point in the future for an amount of money I do not know.

That second part is normal, it's the same as if a Ltd Co buys it, then it belongs to the Co and not to you, but you can buy it from the Co if you want to own it personally.

But it does look to me that, if buying a 1,175 (= 1,000 + 175) laptop knocked 1,175 off your available money, and not just 1,000 off it, then either they are failing to pass on to you the effect of the 175 input VAT (i.e. in short they are claiming the VAT and keeping it), or failing to claim it; or treating it as a reimbursement of an expense, in which case ISTM that the laptop belongs to you.

[Nixon Williams]

If you work through an umbrella, VAT may be reclaimed on part of the mileage allowances, the rate varies but would normally be at least 1.5 pence per mile, not a fortune, but if the average contractor does say 10,000 miles per annum, this adds up to an extra £150 per contractor.

I have never seen this passed on to the client, although I am sure the brolly would say it is reflected in lower fees!