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Limited company charges VAT on third party fees

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Hi,

I have an accounting question in relation to house building, this is the most relevant sub-forum I could find but if not please move accordingly.

The architect I am using is a VAT registered limited business and needs to charge VAT for services. On their last invoice they included the service charges and a planning fee but charged 20% VAT on the total as below,

1. Planning services
2. Planning fee +
20%
TOTAL

To my understanding the planning fee is merely a cost passed on while they act on my behalf when submitting the application. This is not included in the quoted services or a requirement for those services as it is simply a procedural fee and so I believe it should be charged outside the VAT. Also to be noted that council planning does not have VAT as a fee itself.

They believe VAT needs to be charged on the total "turnover", my belief is they are wrong and the fee does not count as turnover but a disbursement.

(remove gaps please)
https:// www .gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers

I want to check my facts before asking them to liaise with their accountant.

Thanks

Comments

  • silvercar
    silvercar Posts: 49,528 Ambassador
    Part of the Furniture 10,000 Posts Academoney Grad Name Dropper
    May be better asking in the tax forum.
    I'm a Forum Ambassador on the housing, mortgages & student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
  • Doozergirl
    Doozergirl Posts: 34,075 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers#1

    My thinking is your thinking. It's a disbursement paid on your behalf, wasn't subject to VAT and no further VAT needs to be added.
    Everything that is supposed to be in heaven is already here on earth.
  • booksurr
    booksurr Posts: 3,700 Forumite
    edited 30 November 2016 at 11:11AM
    you are correct, such fees are disbursements, not recharges.

    the fact that the planning fee does not have VAT charged on it by the council is however an irrelevance as to whether it is itself a disbursement.

    Sadly however if that is the way they have always been doing it, it will take some convincing them they are wrong. I fully agree with you that adding their accountant into the avalanche telling them they are wrong is the way to go.
  • booksurr wrote: »

    the fact that the planning fee does not have VAT charged on it by the council is however an irrelevance as to whether it is itself a disbursement.

    Sadly however if that is the way they have always been doing it, it will take some convincing them they are wrong. I fully agree with you that adding their accountant into the avalanche telling them they are wrong is the way to go.

    Thank you, yes the reference to VAT for the planning fee is of different context.

    I meant to say that even if they had to pay VAT on a procedural fee, it should be transferred entirely (VAT inclusive) as a disbursement and not with VAT added as part of their business.
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