VAT on media spend (FRS)

Ginger_Winner

Hi there,

I trade as a very small business (just me) providing online advertising services. I am VAT registered and use the Flat Rate Scheme as a limited cost trader.

In the past my clients have always purchased their media directly, but I have recently taken on a new client who prefers me to buy the media and to invoice this cost in addition to my fees. I make no profit on this media transaction.

This new arrangement is causing me some confusion as to how I treat the VAT. Here is an example:

* My client agrees to run an online advertising campaign and has a budget of £10,000 set aside for media

* I invoice my client for £10,000 + VAT i.e £12,000

* I purchase £10,000 of media and I am charged £10,000 + VAT i.e. £12,000

So what I am confused about is how I should a account for this when it comes to filling in my VAT return.

I would be very grateful for any advice...

TheCyclingProgrammer

The first thing you need to determine is if the VAT is a disbursement or not. If you!!!8217;re buying it on your clients behalf it might be, although without more information it!!!8217;s hard to be sure. If you are incurring these costs in the course of delivering a service to your client then it might not be a disbursement.

If it is a disbursement then you can show these costs as such on your invoice and they are excluded from your flat rate turnover and calculation. You get the full £12k which cancels out the £12k cost. You neither reclaim the VAT on the original cost or pay any VAT on the disbursement. The client can reclaim the VAT on the cost on their own return.

If it!!!8217;s not a disbursement then you treat the sale like any other and would pay the usual flat rate on the gross amount invoiced and would not be able to reclaim the VAT on the original cost.

00ec25

as he says above

either it is a disbursement, and so no output VAT

or it isn't, in which case your FRS margin applies to the gross sales value.

However, what do you mean by "media", if it includes physical goods it may mean you won't need to be limited cost trader for that quarter and could claim your "sector" rate instead. If the media is services, then sadly you remain LCT.

You may find this explanation of use if unsure of a "disbursement":
https://support.sherwincurrid.com/index.php?/Knowledgebase/Article/View/134/0/Recharged-Expenses-to-end-clients-and-treatment-of-VAT

I assume the fact you are asking on here is because you don't have an accountant for your VAT? Have you tested whether you remain viable on the FRS? It's easy to show you may be better off moving to the standard scheme - those that refuse do so because of the extra admin that involves, not because its cheaper to be LCT.

Ginger_Winner

Hi - many thanks for you the advice. The media does seem to qualify as a disbursement, so that looks like the solution going forward. My only slight challenge is that I have already invoiced and received payment for some spend in the last quarter with the invoices specifying VAT i.e. the same structure as I paid i.e. £10k + £2k VAT. I guess that I should re-issue these marked as 'disbursement £12k' instead.

Regarding the point made by 00ec25 - the 'media' is online ad space, so I think this would be specified as a service so I remain a LCT.

Once again thank you both for your great advice. I appreciate you taking the time to help me out.

Pennywise

If the "media" is google adwords or a similar "online" service provided by an another EU based company, it may be subject to reverse charge VAT - check the invoices to check if you were charged vat or whether reverse charge applies - there's a fundamental effect on FRS VAT which catches out a lot of people who don't realise Google Adwords don't charge VAT - I've had 2 clients in the past few weeks caught out by this.

TheCyclingProgrammer

If the services do fall under the reverse charge for services then that will work out better for OP as they will be able to reclaim the reverse charge VAT outside of the flat rate scheme.

Ginger_Winner

Thanks Pennywise... I've not heard of reverse charge VAT before, so I'm now starting to get confused again!

The media is Amazon Marketing Services - the same principal as adwords but within the Amazon platform. The invoices that I receive are from Amazon Online UK Limited and are regular looking invoices with a line by line ex VAT breakdown of the charges with VAT added at 20% to the aggregate figure.

Should I take it that means Amazon is not subject to reverse charge VAT?

TheCyclingProgrammer

Ginger_Winner wrote: »

Thanks Pennywise... I've not heard of reverse charge VAT before, so I'm now starting to get confused again!

The media is Amazon Marketing Services - the same principal as adwords but within the Amazon platform. The invoices that I receive are from Amazon Online UK Limited and are regular looking invoices with a line by line ex VAT breakdown of the charges with VAT added at 20% to the aggregate figure.

Should I take it that means Amazon is not subject to reverse charge VAT?

It sounds like it's a UK-based entity but check the VAT number. If it has a UK VAT number on it then it's not subject to the reverse charge and is accounted for under normal UK VAT rules.

It is possible to get an invoice with UK VAT from a non-UK business under the B2C VAT on digital services rules although this shouldn't happen with a B2B transaction - however unless the supplier is aware that you are a business and normally, you need to give them your VAT number, they might treat it as B2C. If this happens, it's not subject to the reverse charge and you cannot recover the VAT either - always make sure you get invoices from overseas suppliers for services without VAT applied so you can account for them under the reverse charge.