VAT on Client Rechargeable expenses

[manolito72]

Hi all,
I've just started as a contractor, through an Umbrella company, and I'm hitting a bit of an impasse about how VAT on expenses that I charge directly to my client is dealt with. Current position is that I am the one out of pocket, which doesn't seem right to me.

So in a very normal scenario such as a hotel booking:
I pay £100 + VAT for the hotel = £120
I submit that £120 expense to my employer (the Umbrella) shown as a Direct expense
They add further VAT onto the total of their invoice to my client, so that hotel now is at £144

Is that correct? I think maybe it is as they're invoicing for the 'service' (me being in the hotel) as opposed to the actual hotel booking.
But I don't know understand how the VAT side should be working.

My client says they are being charged double VAT on this
My client also states they pay the net of expenses, assuming (I guess) that my Umbrella claim back the VAT and pass it on to me along with the £100 they get from the Client.

That's not how it is working at the moment, so I am getting the £100 when the actual cost to me was £120.

My client isn't paying the VAT element because they feel the Umbrella should, and vice versa.
My client is also suggesting I find a new Umbrella if I want to keep working for them because this is hassle they don't need.
I don't need it either, but if all Umbrella's work the same way and this is correct as it is then moving won't help me.

Surely charging expenses directly over to the client and getting paid them back in full is quite normal, and the treatment of the VAT is what I pay the Umbrella company to worry about?

Any advice welcome.
Thanks

[tractor]

..

Many clients. agents and some umbrellas seem unsure how this should work.

For the low down see this from the HMRC web site.

And from Inniaccounts

I am sure some of our well versed residents will be along to tell you in english how it works

[Sally@InTouch]

Hi all,
I've just started as a contractor, through an Umbrella company, and I'm hitting a bit of an impasse about how VAT on expenses that I charge directly to my client is dealt with. Current position is that I am the one out of pocket, which doesn't seem right to me.

So in a very normal scenario such as a hotel booking:
I pay £100 + VAT for the hotel = £120
I submit that £120 expense to my employer (the Umbrella) shown as a Direct expense
They add further VAT onto the total of their invoice to my client, so that hotel now is at £144

Is that correct? I think maybe it is as they're invoicing for the 'service' (me being in the hotel) as opposed to the actual hotel booking.
But I don't know understand how the VAT side should be working.



My client says they are being charged double VAT on this
My client also states they pay the net of expenses, assuming (I guess) that my Umbrella claim back the VAT and pass it on to me along with the £100 they get from the Client.

That's not how it is working at the moment, so I am getting the £100 when the actual cost to me was £120.

My client isn't paying the VAT element because they feel the Umbrella should, and vice versa.
My client is also suggesting I find a new Umbrella if I want to keep working for them because this is hassle they don't need.
I don't need it either, but if all Umbrella's work the same way and this is correct as it is then moving won't help me.

Surely charging expenses directly over to the client and getting paid them back in full is quite normal, and the treatment of the VAT is what I pay the Umbrella company to worry about?

Any advice welcome.
Thanks

Your umbrella are invoicing this correctly. The cost to both the umbrella and client is still only £120 as they can both offset the VAT. However, you should be reimbursed the £120 cost to you. I would go back and ask them to explain why.

[SueEllen]

The way round this is for the client to sort out the accommodation and any other expenses directly for you.

[Scott C Accountant]

Hi Manolito72

Under VAT legislation, when recharging expenses you should reduce any VATable ones [to be VATable they have to be of a VATable nature i.e. hotel bills, parking fees, meals etc (certain expenses like flights and rail fares are not VATable) and they should contain a VAT number on the invoice if it is a VAT registered business] down to the pre-VAT element [e.g. if you had a hotel bill for £100.00 + VAT ( = £120.00) the amount that you would list on your expenses would be £100.00 and if you had a rail fare for £50.00 (that does not include VAT) the amount that you would list on your expenses would be £50.00], add them all up to get to a sub-total of expenses, add the expenses sub-total to the consultancy fees to come to a second sub-total and then charge VAT at 20% on the second sub-total to come to the grand total billable to the customer. By doing the `netting down’ process and then charging VAT at 20% on the invoice you are effectively charging VAT on any expenses that did not include VAT to begin with and you are also restoring any `netted down’ expenses back to their original costs and this the correct way to do it.