VAT on expenses

stphnstevey

I am trying to work out if I can charge VAT to a client on expenses where VAT has already been paid by myself. So far I have found the following and it appears I should charge VAT on expenses whether they were zero rated or I have already paid VAT:

Expenses incurred by an advisor (in the course of providing his advice) are normally subject to VAT when charged on to his client. Where you incur expenses while providing your service to the client and are able to recharge these to your client the liability of this recharge shall follow the liability of the main supply.

In other words if your main supply falls subject to VAT, VAT output tax must be added to the recharge. The VAT position is generally neutral as you will recharge the same amount of VAT as you have suffered. However if train or flight fares are recharged VAT has to be added to these also even though they will have been charged to you at the zero rate of VAT.

This is detailed in Notice 700 Section 25.1 – If these costs have been incurred by suppliers in the course of making their own supply to their clients, then they must be included in the value of those supplies when VAT is calculated.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&id=HMCE_CL_001596#P2401_197529

Quentin

Yes - you add VAT. (You will be invoicing at the pre vat cost, then adding VAT to the lot).

So you are right both you and the Client will pay VAT - which is the basis of the VAT system.

(This assumes you are VAT registered, of course)

stphnstevey

Why invoicing at the pre-VAT cost - I read that I charge VAT on what ever I paid (ie the cost plus VAT)?

Quentin

Are you VAT registered?

If so, then you will reclaim the VAT you paid on the expenses in the usual way.

stphnstevey

Yes I am VAT registered and would reclaim any VAT the company pay - but that doesn't answer my question - why pre-VAT costs?

Quentin

Because that is the system!

And you quoted the relevant bit:

The VAT position is generally neutral as you will recharge the same amount of VAT as you have suffered.

eg. If your expenses that you are passing on straight to your client cost you £117.50, (including VAT), then you would put them through your books as £100, and reclaim the VAT of £17.50.

You invoice them out at the same £100 and add the VAT on.

Thus your client pays the correct £117.50 (including VAT).

tyllwyd

I'm not VAT registered and I'm always a bit confused about what I should be doing. Do I just treat the £117.50 as a single cost, or should I be separating out the VAT in some way?

Quentin

If you aren't vat registered, then just add the full cost of the expenses on to your bill

eg if you pay £117.50 then that is what you charge out to the client.

DariaKucz

Hi... I have a small problem with expenses. I red few posts at forum but can't get right with it.

In my company I have few consultants who works in UK companies 5 days a week. During their time there, they are spending money for hotel, travel and so. After month they are always sending me receipts so I can invoice those expenses to the customer. I just get sum of the amount and invoice it. I don't add any VAT, and don't claim this VAT back. Is it wrong ? How should I deal with this? (Our company is VAT registred).


(Sorry for my english, I am not british, it's my 4th month in this country...).

JasonLVC

Your consultants work in UK companies and incur expenditure which you want to recharge to your clients.

Is your company based in the UK or in another EU state (you say you are registered for VAT but don't say in which country)?

Can you also give a basic detail of what service your consultants provide.

Generally, the recharging of expenses such as hotels, food will be subject to VAT as they are taxable transactions for VAT purposes. So you should be charging VAT. You say you do not reclaim VAT either on these expenditures. As long as your consultnats give you a valid VAT receipt (a receipt from the hotel/cafe which shows a VAT number and description of what was supplied) then you can reclaim the VAT on these as a business expense.

But if you can answer the questions I've asked that'll help improve the advice.