vAT question - any accountants?

Snooze

Hi.

In short, when raising invoices for services provided where expenses have been incurred and are to be paid by the client, should VAT be added or not?

Longer version : lorry driver providing driving services as a VAT reg'd ltd co (flat rate scheme), mainly working for agencies and driving for their clients. £10 top up voucher bought to put credit on the client's mobile phone provided.

It is my understanding that you can only claim back the actual cost of the expense as (in this case at least) the VAT has already been paid when it was purchased, so by charging them £10 + £2 VAT as expenses when it only cost you £10 it wouldn't be allowed?

The agency claims to have clarified the situation with their own accountants and they are correct as I provide "services" rather than "goods". I'm not convinced and would greatly appreciate clairification from anyone in this line. If it would be possible to refer me to the relevant legislation as well (if it exists) that would be doubly useful. Thanks.

Pennywise

Snooze wrote: »

Hi.

In short, when raising invoices for services provided where expenses have been incurred and are to be paid by the client, should VAT be added or not?

Longer version : lorry driver providing driving services as a VAT reg'd ltd co (flat rate scheme), mainly working for agencies and driving for their clients. £10 top up voucher bought to put credit on the client's mobile phone provided.

It is my understanding that you can only claim back the actual cost of the expense as (in this case at least) the VAT has already been paid when it was purchased, so by charging them £10 + £2 VAT as expenses when it only cost you £10 it wouldn't be allowed?

The agency claims to have clarified the situation with their own accountants and they are correct as I provide "services" rather than "goods". I'm not convinced and would greatly appreciate clairification from anyone in this line. If it would be possible to refer me to the relevant legislation as well (if it exists) that would be doubly useful. Thanks.

You should charge VAT on recharged expenses - quick google search brought up the following as the number 1 answer:-

http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm#2

chrismac1

In simple terms, the way VAT works is this:

Everything is 20% unless you can find a Schedule on the HMRC rules which permits a lower figure.

Some other examples of this:

1. In my practice I have 100% cover across my client base for tax investigation insurance, no vat on the invoice to me. Some clients elect to pay for this, so any HMRC enquiries cost them nothing. I invoice them, this is at 20% VAT.

2. A client sold a PC to a leaving employee for £600. I pointed out that as their business was fully 20% VAT and sale of PCs is also a 20% supply, there was £100 output tax to account for.

3. Train travel is 0%. If as a contractor you raise an invoice for £800 of your time plus £200 of train tickets, you have £200 VAT to add on the full 1,000.

And so it goes on.If in doubt, assume the country is having its cake and eating it and you won't be far wrong on VAT!

Snooze

Thanks. So how would I list this on my invoice to them? They allow me to claim up to £5 per day for phone expenses if driving a wagon not fitted with a company phone, which is what I do, but as these calls come out of a phone contract with a limited amount of "free" minutes I don't see how I can list this correctly on my invoice. The same contract is also used for personal calls and there isn't any easy way to separate them.

All I want to do is recoup the £5 they're allowing me, but as it's for myself to carry out my duties rather than for them I understand that I must charge VAT on top, but only after removing the initial VAT element (of which there is none, technically).

:huh:

Wywth

Snooze wrote: »

Thanks. So how would I list this on my invoice to them? They allow me to claim up to £5 per day for phone expenses if driving a wagon not fitted with a company phone, which is what I do, but as these calls come out of a phone contract with a limited amount of "free" minutes I don't see how I can list this correctly on my invoice. The same contract is also used for personal calls and there isn't any easy way to separate them.

All I want to do is recoup the £5 they're allowing me, but as it's for myself to carry out my duties rather than for them I understand that I must charge VAT on top, but only after removing the initial VAT element (of which there is none, technically).

:huh:

So it's not your truck, and they are paying you expenses.

Sounds like you could be a disguised employee of the transport company.

(HMRC only permit expenses to be paid to employees of the payer)

Snooze

Wywth wrote: »

So it's not your truck, and they are paying you expenses.

Sounds like you could be a disguised employee of the transport company.

(HMRC only permit expenses to be paid to employees of the payer)

Rubbish. I'm a ltd co and contract my driving services to around half a dozen local companies. This particular client will "allow" up to £5 to be claimed for phone expenses, which usually works out about right if one were to use a PAYG sim on a standard tarriff to call them with updates. In the past when I did actually have a PAYG sim and was s/e I have billed them for more than their "allowance" which was repaid without question, but only because there'd been an accident which necessitated a lot of phone calls.

Anyway, that is irrelevant to my question so thank you for your input but I would rather hear from someone that can answer my specific question.

molerat

I doubt your ltd company can claim "expenses", you provide "services" and vat goes on top.

Snooze

molerat wrote: »

I doubt your ltd company can claim "expenses", you provide "services" and vat goes on top.

The semantics of what you want to call it are neither here nor there. It's a cost incurred by me in order to carry out my duties ("service") to them, which I believe are vatable. But once again it's not answered my question on how to correctly invoice them for the £5 that they are happy for me to charge them for keeping them updated by phone when it's coming off a phone contract with bundled "minutes".

molerat

It is not semantics, it is how it works. Mr Snooze is not claiming expenses, Snooze ltd is charging for a service which is subject to vat. How you derive the chargeable price of that service is up to you. PAYG minutes are quite simple. For contract you either come up with an acceptable daily price or work a pro rata minutes used from your contract cost bearing in mind you will also get texts and data in that contract. The main thing being that whatever service you provide you add vat. I believe you are thinking too hard about this.

Snooze

molerat wrote: »

It is not semantics, it is how it works. Mr Snooze is not claiming expenses, Snooze ltd is charging for a service to which is subject to vat. How you derive the chargeable price of that service is up to you. PAYG minutes are quite simple. For contract you either come up with an acceptable daily price or work a pro rata minutes used from your contract cost bearing in mind you will also get texts and data in that contract. The main thing being that whatever service you provide you add vat. I believe you are thinking too hard about this.

That's about the 3rd time you've edited it now! Anything else to add?!

- Thanks. My concern was that I would need supporting VAT receipts to back it up. For example, if I was recharging a £10 top up voucher, I would have to bill them for £8.33 + VAT to make it back up to the £10 as you can't charge VAT on stuff that you've already paid the VAT on. However it seems in this scenario that I just bill them "whatever" as agreed between us and stick VAT on top and don't need any evidence for the VAT man?

cotswoldaccountant

You can bill your client for whatever expenses you have agreed with them, and must charge 20% VAT. The recharge will be shown as turnover in your company accounts. The only evidence that HMRC will require are correctly prepared VAT invoices from your company to your client.

However, unless you include a mobile phone cost in your business accounts, you will have to pay corporation tax on the recharged phone costs because they are part of your business profit.

Assuming that you are an employee of the business, you will wish to reclaim your mobile phone costs from your limited company. This would reduce the company's profit thus saving Corporation Tax on the phone expenses. However, an employee expense claim for mobile phone costs can only be done without a benefit in kind implication arising if the mobile phone contract is in the name of the company, or if you are claiming the cost of separate itemised phone call costs (at which point you will need the phone bill to back up your claim, and your company's subsequent VAT reclaim). It's a tricky area, and I would advise that you discuss with your accountant.