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VAT on expenses

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    VAT on expenses

    Hi All

    First post so apologies if this has been covered before....

    I have recently gone self employed after a year of using an umbrella company. As part of my contract I receive a daily rate plus my expenses are covered (I stay away most weeks). The issue I have is that I do not know how to treat the expenses when it comes to VAT.

    When submitting my expenses I have the option of claiming them (1). 'VAT registered - VAT removed' or (2). 'VAT registered - No VAT to remove'. I have been told by my agency that I need to key a combination of these, i.e. if I get a taxi receipt for £6 I would key option 2 as I do not have a VAT receipt and key it as gross. If I had say a hotel bill for £120 I would key option 1 and key the amount as net £100.

    The problem I am having is I do not know if this is correct. If I enter my expenses as per above, £106 the agency would then pay me this plus 20% VAT £127.20. My accountant is then paying HMRC VAT of 14% ( I am on the flat rate) so on the above example I pay £15.62. Based on this I originally paid out £120 in expenses I am only getting back £111.58 so I feel I am out of pocket by £8.42.

    My accountant has advised that I should key everything as net so the agency then pay me the exact amount I paid out originally, he also confirmed that I would still have to pay the 14% to HMRC and take the hit on this although overall I am better off by being on the flat rate?

    I guess I have a number of questions:

    1). Should the agency be paying me VAT on top of the the expenses claimed
    2). Should I be paying HMRC VAT on these expenses rebates


    Apologies for the long winded query and I hope it makes sense....any advice would be good!

    #2
    There are 2 separate things going on here. Firstly, you would incur the expenses and then reimburse yourself from your company so you're not personally out of pocket.

    Then your limited company would 'recharge expenses' to the agency. Whatever it recharges, it should add VAT at 20% on top (assuming it is not a disbursement which in most cases wouldn't be). The agency settles the invoice and you pay over "14%" of the gross amount over the the VAT man e.g. your company incurs a hotel bill of £120 inc. VAT. It decides to recharge the cost to the agency at £144 (£120 + VAT). Your company then pays £20.16 to HMRC based on "14%" flat rate percentage.

    It should be as simple as that. The agency aren't going to lose out because in turn, they will charge the end user £120 plus VAT (£144) so they'll pay you the 20% VAT but reclaim it from HMRC.

    You might want to check the FRS percentage is 14.5% rather than 14% unless you're in real estate activities.

    Hope this helps.

    Comment


      #3
      Originally posted by PRBLTD View Post
      Hi All

      First post so apologies if this has been covered before....
      If it has you can find it using the search. The way to search is explained here...

      http://forums.contractoruk.com/welco...uk-forums.html

      Am sure one of our board specilists will come along and answer your exact question in a minute.
      'CUK forum personality of 2011 - Winner - Yes really!!!!

      Comment


        #4
        Originally posted by PRBLTD View Post
        1). Should the agency be paying me VAT on top of the the expenses claimed
        2). Should I be paying HMRC VAT on these expenses rebates
        As NLUK says, try a search as this is covered often, including very recently.

        In your case, it sounds pretty straightforward to me...you are only allowed to expense the original amount that you paid excluding the VAT, then you add one lot of VAT on top of that in your invoice to the agency.

        This will depend on your contract and what is agreed in that, as for me, I charge the full amount (including the VAT I paid) plus my own VAT on top of that. There is no easy answer for all cases, it depends purely on what was agreed in the contract.

        The fact you are losing out due to being on FRS is your own problem unfortunately, not the agencies or the end clients. If you are losing out to the extent of losing money overall, then the answer is to leave the FRS.

        HTH.

        Comment


          #5
          As I'm sure I've said before, do the sums for a £100 + VAT bill:

          Option 1 - You pay out £120, charge them £100 + £20 VAT and reclaim £20 and they reclaim £20. Total VAT paid £40, total VAT reclaimed £40, net VAT £0.

          Option 2 - You pay out £120, charge them £120 + VAT and reclaim £20 and they reclaim £24. Total VAT charged £44, total reclaimed £44, net VAT £0.

          So why bother with option 1?

          If you're FRS, same basic logic applies, you pay out £120, you charge out £120, you reclaim £14 and they reclaim £20, total VAT charged £40, total VAT reclaimed £34. You just lost £6...
          Last edited by malvolio; 14 November 2012, 12:47.
          Blog? What blog...?

          Comment


            #6
            Originally posted by malvolio View Post
            As I'm sure I've said before, do the sums for a £100 + VAT bill:

            Option 1 - You pay out £120, charge them £100 + £20 VAT and reclaim £20 and they reclaim £20. Total VAT paid £40, total VAT reclaimed £40, net VAT £0.

            Option 2 - You pay out £120, charge them £120 + VAT and reclaim £20 and they reclaim £24. Total VAT charged £44, total reclaimed £44, net VAT £0.

            So why bother with option 1?

            If you're FRS, same basic logic applies, you pay out £120, you charge out £120, you reclaim £14 and they reclaim £20, total VAT charged £40, total VAT reclaimed £34. You just lost £6...
            Because you might not have a choice, that's why. It's not just about VAT, it's also about how much the agent/end client ends up paying.

            Option 1, agency/client pays you £100 excl. VAT for the expense.

            Option 2, they have to pay an extra £20 for exactly the same expense and for no additional benefit.

            Comment


              #7
              Originally posted by captainham View Post
              Because you might not have a choice, that's why. It's not just about VAT, it's also about how much the agent/end client ends up paying.

              Option 1, agency/client pays you £100 excl. VAT for the expense.

              Option 2, they have to pay an extra £20 for exactly the same expense and for no additional benefit.
              No. Try again.

              (hint: they pay what's on the invoice. If they don't, they're committing VAT fraud.)
              Blog? What blog...?

              Comment


                #8
                Originally posted by malvolio View Post
                No. Try again.

                (hint: they pay what's on the invoice. If they don't, they're committing VAT fraud.)
                Unless I'm getting very confused here (moi?! ), I'm not sure where you're coming from.

                In our example of our £100 hotel bill, which has £20 VAT added on top that I (or my Co) pays out to begin with...

                ...depending on what is agreed in the contract, I will either be allowed to invoice for the net amount or the gross amount.

                Let's forget about reclaiming the VAT ourselves as most of us are on FRS, so we can't reclaim this anyway.


                For me in my current contract, I claim the gross amount. So I invoice the client for £120, and I add 20% VAT on top of that.

                Result: client pays £144 and reclaims £24. Total cost to client = £120.


                I know of others in other contracts (different agencies/clients altogether) who can only claim the net amount. So they invoice £100 and add 20% VAT on top.

                Result: client pays £120 and reclaims £20. Total cost to client = £100.


                What am I missing here? One option costs the client more (but is better for me as I'm on FRS), the other benefits the client more (and costs me because I'm on FRS)...

                Comment


                  #9
                  Originally posted by captainham View Post
                  Unless I'm getting very confused here (moi?! ), I'm not sure where you're coming from.

                  In our example of our £100 hotel bill, which has £20 VAT added on top that I (or my Co) pays out to begin with...

                  ...depending on what is agreed in the contract, I will either be allowed to invoice for the net amount or the gross amount.

                  Let's forget about reclaiming the VAT ourselves as most of us are on FRS, so we can't reclaim this anyway.


                  For me in my current contract, I claim the gross amount. So I invoice the client for £120, and I add 20% VAT on top of that.

                  Result: client pays £144 and reclaims £24. Total cost to client = £120.


                  I know of others in other contracts (different agencies/clients altogether) who can only claim the net amount. So they invoice £100 and add 20% VAT on top.

                  Result: client pays £120 and reclaims £20. Total cost to client = £100.


                  What am I missing here? One option costs the client more (but is better for me as I'm on FRS), the other benefits the client more (and costs me because I'm on FRS)...
                  For one thing, they probably won't charge the client £120, they'll charge them £144, including £24 VAT and keep the £20... unless they have a very close tie in with the client's systems.

                  But anyway, I don't do FRS, and I have been working with VAT since it was first announced, so I stick to the direct route. It doesn't really matter if you do net or gross (apart from the minor detail it's more complicated and marginally less practical to do it net), if you issue an invoice you have to add VAT to the total of it regardless. The only variation is in what you charge to make up the invoice and if you choose to knock £20 off that's your call. There's no legal requirement on the price, only on the VAT.
                  Blog? What blog...?

                  Comment


                    #10
                    Originally posted by malvolio View Post
                    For one thing, they probably won't charge the client £120, they'll charge them £144, including £24 VAT and keep the £20... unless they have a very close tie in with the client's systems.

                    But anyway, I don't do FRS, and I have been working with VAT since it was first announced, so I stick to the direct route. It doesn't really matter if you do net or gross (apart from the minor detail it's more complicated and marginally less practical to do it net), if you issue an invoice you have to add VAT to the total of it regardless. The only variation is in what you charge to make up the invoice and if you choose to knock £20 off that's your call. There's no legal requirement on the price, only on the VAT.

                    I'm not disagreeing with you, I'm merely stating that sometimes we have no option to stick with the 'direct route' as you call it. It does matter if you charge net or gross if you're the end client, as one costs the end client more money.

                    Essentially it doesn't matter what the agency passes on to the client (and whether they add their own VAT on top of a figure that already includes VAT or not), as this is down to the commercial agreement between those two parties.

                    In the same way, how you reclaim your own expenses from the agent will depend on the commercial agreement you have with the agent, and it is this that (can) dictate whether you charge net or gross of VAT.

                    That's the only point I'm trying to make.

                    Comment

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