Expenses + VAT?????

downsouth · Apr 26, 2009

If i claim expenses from a client for travel, hotels, taxis etc, should I also claim for VAT on top of the actual expensed value. I am VAT registered.

Hotel actual cost £100, my expenses to client £100 + vat (£115)

I do actually only at present claim the actual costs but a question arose at work recently whereby you 'should' also charge VAT on top of the expenses????

sheelagh · Apr 26, 2009

Yes, you should add VAT. The additional costs are part of the cost of delivering your services.
You can claim back the VAT you paid to the hotel and you should add VAT to the amount you charge your client. The amount you charge your client is decided between you and the client - it might be the exact cost incurred, or it might be an agreed sum.
The only time you would not add VAT is if the "expenses" swere dispersements.

see here

http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm

David Griffiths · Apr 26, 2009

Is the hotel bill to you £100 including VAT? In that case, depending on youre agreement with the client, should you not be charging the actual cost to you of the net amount? If you charge £100 plus VAT you are making a profit on it.

Either way, the invoice to the client must have VAT charged on all elements.

downsouth · Apr 26, 2009

the hotel bill of £100 is inclusive of VAT. I agree on charging the client £100 + VAT makes this appear like i'm making a profit, so some clarity on what I should bill the end client is whats required.

Should I simply charge £86.96 + Vat (£13.04) = £100

what about items like taxi's, where there is no visibility of any VAT element, say taxi fare is £30 what should I charge the client? £30+vat???? that doesn't look right to me

Jenni384 · Apr 27, 2009

downsouth said:
what about items like taxi's, where there is no visibility of any VAT element, say taxi fare is £30 what should I charge the client? £30+vat???? that doesn't look right to me

As David says, you have to charge VAT on all elements, unless they are disbursements (which can get complicated but, in short, as you used the taxi and not the client, it can't be a disbursement).

IIRC, last time I looked at disbursements, (which I admit was a number of years ago!), I seem to recall that you have to add VAT to the gross, thus making a 'profit' on it for both you and the VAT man.

Mattonella Tile Studio · Apr 27, 2009

At the end of the day, if a taxi costs £30, you need to bill your client £30 + VAT to cover your costs. VAT man is having his bit anyway, so if you add £30 to the clients bill, you're only getting to keep about £26, making you out of pocket.

Kevin Hall · Apr 27, 2009

As Jenni says, because you both paid for and enjoyed the hotel room (or the taxi ride), it's not an expense belonging to the client and therefore cannot be a disbursement, according to HMRC's own guidance on this:

Some examples of costs that could be recharges but are not disbursements include:

An airline ticket that you buy to visit a client or to travel to a job. If you recharge the cost to your client you must charge VAT because the flight was for you, not for the client.

So what do you do?

Well, let's say the hotel charges £100 net and adds £15 VAT (assuming it's not an overseas hotel, in which case reclaiming the VAT charged to you is possible but more awkward and so some businesses don't bother with it - which would change the comments I am about to make).

The purchase invoice is for £115 and you pay £115 from you cash book. However, if your business then reclaims the £15 VAT (e.g. assuming you are, for example, an employee of the business), your business has only suffered a net expense of £100.

You would then recharge the £100 expense to your client (assuming they have agreed to meet your actual expenses and your business cannot make a profit from this), adding VAT at 15%.

However, if your business is not reclaiming the VAT on the hotel expense, then your business would have to recharge £115 to the client and add VAT at 15% on that gross figure (i.e. £132.25 in total).

Hope that helps?

downsouth · Apr 27, 2009

Thanks All, sure cleared a few VAT issues up and will make excellent conversation at the clients site tomorrow

Thanks again

stphnstevey · Apr 28, 2009

Didn't think the client will like it if you are charging VAT on VAT (ie charge VAT on an expense were you have been charged VAT).

Therefore I thought you charge the client the net amount (or full amount if no VAT) and then charge VAT on that, as the expense was incured in delivering delivering a service.

For expenses were you don't incur VAT (eg train tickets), you actually make a small profit.

Is it ok to charge VAT on reimbursed mileage rates for using your personal car (ie 40p/25p a mile?)?

weebly_one · Apr 29, 2009

stphnstevey said:
Is it ok to charge VAT on reimbursed mileage rates for using your personal car (ie 40p/25p a mile?)?

Personally I do charge VAT on reimbursed mileage - and I have never had a query about doing that - let me know if I am doing this wrong though.

Another question - what should you do if you are recharging the actual cost of postage - as postage is a zero rated supply?

limotek · Apr 29, 2009

Yes definitely charge V.A.T on top. The government are going to end up charging you anyway so charging the customer is a must to stop you being at a loss.

David Griffiths · Apr 29, 2009

weebly_one said:
- as postage is a zero rated supply?

Exempt, actually, but only when supplied by the Royal Mail. Notice 700/24

Delivery charges added by a trader to the cost of goods carry the same VAT rate as the goods themselves.

Jenni384 · Apr 29, 2009

David Griffiths said:
Delivery charges added by a trader to the cost of goods carry the same VAT rate as the goods themselves.

Yep, as many people don't seem to know. Posted a purchase invoice today for standard rated goods with either zero or exempt VAT (it didn't say) on Postage and Packaging.....

Poupee11 · May 26, 2009

You can only charge VAT on Bills to your Customers if you are registered for VAT.

northernboy · Sep 23, 2011

But what if your in the Flat Rate Scheme for VAT, you can't reclaim VAT and will end out of pocket. I had expenses which were £80 net+£20 VAT = £100, I invoiced my client £100 plus VAT, but they only paid me back £100. Meaning once I pay HMRC, the VAT on the £100, I'm left with £86.

Do I have to take the hit for this?

Kevin Hall · Sep 23, 2011

What Flat Rate% you are applying? 14%? If so, then yes - because your customer has not paid you in full, you are out of pocket £20, but HMRC still gets Flat Rate% of the (not-paid-in-full) amount you do receive.

As a solution for the future, consider whether the Flat Rate scheme really does suit your business (for many it results in more VAT paid to HMRC than with standard VAT accounting!).

As a solution for this particular transaction, I notice you happen to have received exactly the same amount as you paid to your supplier. If you are not processing this item, and if you are simply buying in this item as agent for the customer, you might qualify for Disbursement Rules (which say the purchase was made on behalf of the customer and does not belong to you; so it is not part of your purchases & sales and no VAT needs to be applied to the sales total). You would need to make sure (i) that you meet all the criteria and (ii) that this can be used with the Flat Rate Scheme.

Hope it helps?

northernboy · Sep 23, 2011

Kevin Hall said:
What Flat Rate% you are applying? 14%? If so, then yes - because your customer has not paid you in full, you are out of pocket £20, but HMRC still gets Flat Rate% of the (not-paid-in-full) amount you do receive.

As a solution for the future, consider whether the Flat Rate scheme really does suit your business (for many it results in more VAT paid to HMRC than with standard VAT accounting!).

As a solution for this particular transaction, I notice you happen to have received exactly the same amount as you paid to your supplier. If you are not processing this item, and if you are simply buying in this item as agent for the customer, you might qualify for Disbursement Rules (which say the purchase was made on behalf of the customer and does not belong to you; so it is not part of your purchases & sales and no VAT needs to be applied to the sales total). You would need to make sure (i) that you meet all the criteria and (ii) that this can be used with the Flat Rate Scheme.

Hope it helps?

Thanks for your advice, looks like as I'm on the flat rate scheme, I'll have to take the hit for my loss in revenue due to expenses incurred. Its not really fair, especially if your incurring 1000s in expenses.

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Expenses + VAT?????

downsouth

sheelagh

David Griffiths

downsouth

Jenni384

Mattonella Tile Studio

Kevin Hall

downsouth

stphnstevey

weebly_one

limotek

David Griffiths

Jenni384

Poupee11

northernboy

Kevin Hall

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