VAT on expenses

lrhem

I have a friend who has set up as a sole trader (not vat registered) and incurred expenses during his first month of work. He will reimburse himself from his company bank account as soon as it is set up and his first payment is received. The expenses are for travel and accommodation and include an element of VAT. He will reimburse himself the whole amount from his company bank account as soon as it is set up and his first payment is received. His main client is tax exempt due to charity status and his contract from them states he will be paid expenses at cost. The cost to him includes VAT. Should he charge them the full amount or the amount less VAT?

ROCK

Hi

Your friend needs to recharge the cost including VAT as they are not VAT registered they will not be able to reclaim the VAT element and therefore will be out of pocket

The contract point about recharging at cost is to stop your friend marking up the expense to make a bit extra

PGM

paulshawyer wrote: »

Hi

Your friend needs to recharge the cost including VAT as they are not VAT registered they will not be able to reclaim the VAT element and therefore will be out of pocket

The contract point about recharging at cost is to stop your friend marking up the expense to make a bit extra

I think this is right.

Although vat is never so simple. As far as I know, just having charitable status does not affect your vat status, depends much more on your trade.

Psyche

This is correct. Your client should re-bill his expenses inclusive of the VAT he paid (not charging extra VAT on top). He then includes the VAT he recharges in his inputs, and can reclaim the VAT he paid as output VAT. Your client's client cannot reclaim the VAT because they are not registered, but that is not your client's problem.

Hope this helps!

lrhem

Many thanks for your confirmations.
His expense inclusive of VAT is the cost he incurs and therefore this is what he charges his client regardless of them being Exempt for VAT.