VAT on Client Rechargeable expenses VAT on Client Rechargeable expenses
Posts 1 to 5 of 5
  1. #1

    Nervous Newbie


    Join Date
    Oct 2012
    Posts
    1

    Default VAT on Client Rechargeable expenses

    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

  2. #2

    Super poster

    tractor's Avatar
    Join Date
    Jul 2011
    Location
    Berks
    Posts
    3,518

    Default ..

    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
    Last edited by tractor; 12th October 2012 at 11:25.

  3. #3

    Should post faster

    Sally@InTouch's Avatar
    Join Date
    Apr 2012
    Posts
    102

    Default

    Quote Originally Posted by manolito72 View Post
    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.

  4. #4

    I live on CUK

    SueEllen's Avatar
    Join Date
    Nov 2005
    Location
    in the Park
    Posts
    29,523

    Default

    The way round this is for the client to sort out the accommodation and any other expenses directly for you.
    "You’re just a bad memory who doesn’t know when to go away" JR

  5. #5

    Nervous Newbie


    Join Date
    Oct 2012
    Location
    Huddersfield, West Yorkshire
    Posts
    10

    Default

    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.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •