Limited company charges VAT on third party fees

masamune

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

silvercar

May be better asking in the tax forum.

Doozergirl

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.

booksurr

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.

masamune

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.