VAT question

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in AAT member discussion
Hi,

I've been asked a question about VAT that I don't know the answer to - can anyone here help me?

We have a consultant who charges us by the day for his services. He will also charge on his expenses to us. He was wondering if he should charge us the VAT inclusive amount that he has paid, then add on VAT again at the end as the expenses could be seen as a part of his service, or whether he should charge us the amount he has been charged net of VAT, before adding on the VAT to the whole bill at the end.

If anyone could advise me which way is correct (I think he needs to include the net amount in his bill before adding VAT on the whole bill at the end), I'd really appreciate your help.

Many thanks
Isidis

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT question

    I would think he would charge you the whole expense including the vat. You did say he was claiming for expenses he has paid out therefore he would claim the full amount with the VAT from C&E. I take it he is claiming the VAT on the expense he originaly suffered. As he is claiming this expense back from yourself I dont think he can keep the VAT claimed from C& E (He would offset the output and input vat). Is he VAT registered? I am sure this is right. Would love to hear what anyone else has to say. I didnt think he could charge you the full expense including VAT and then charge VAT again at the end of the bill. anyway are you claiming the VAT back? Are you VAT registered.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT question


    I'd go for the net amount too e.g.

    Service charge for the day (net of VAT); £40
    Lunch expense for the day (net of VAT); £4
    Total net charge; £44
    Output VAT @ 17.5%; £7.70
    Total amount charged; £51.70

    If lunch cost him £2.35 inclusive then allowing for input/outputs, I reckon he would have a VAT liability of £7.35.
    If he charged the lunch expense gross, then it would be;

    Service charge for the day (net of VAT); £40
    Lunch expense for the day (inclusive of £0.70 VAT); £4.70
    Total 'net' charge; £44.70
    Output VAT @ 17.5%; £7.82
    Total amount charged; £52.52

    If lunch cost him £2.35 inclusive then allowing for input/outputs, he would have an artificially increased VAT liability of £7.47.

    I'm probably wrong and inevitably wait to be corrected!

    Robert

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT question

    I agree that amounts charged are usually net if VAT is recoverable, and gross if not recoverable. For example:

    Your client should charge £40.00 for his services and £4.00 for lunch, i.e. £44.00 plus VAT of £7.70 if VAT is recoverable. Here he accounts for his VAT position and you account for £7.70 to HMRC. This is normal practice.

    However, he should charge £40.00 for his service and £8.00 (Cost) plus £1.40 (VAT) for widgets, i.e. total is £49.50 but VAT charged on invoice is only £7.00. Here VAT of £1.40 on widgets is not recoverable. and you account only for £7.00 to HMRC.
    Hope this is useful.

    Gita
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT question

    Hi,

    Thanks for the posts, we are a VAT registered business, and so is our consultant. In the end he charged us the net amount, then added VAT on to it, so we basically reimbursed him for the actual expense incurred, which seems right to me.

    Thanks!

    Isidis
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:VAT question

    Hi there,
    I don't think this is the correct way... as vat is charged always on the value added. That's the nature of this tax.
    He incures expensess which he passes on to his client.
    If he pays £4.70 (vat incl) for a lunch .. he should have charge vat on top of the gross..£4.70 * 17.5% - the same rate as he is using for his normall work/ services.
    Only expenses which are treated as disbursements for vat purposes can be reimbursed at the same amount.
    At least that what applies for solicitors. Look at VAT Guide 1996 by The Law Society
    or HMRC : disbursements - input tax...

    Maybe I'm wrong.. but that's how I understand this subject..

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