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worsy

Original Poster:

1,788 posts

58 months

[news] 
Tuesday 9th October 2012 quote quote all
Can someone please clarify the scenario below please.

Contractor on standard rate vat scheme incurs hotel room cost of £120 gross which they claim back from client.

Net cost is £100 and contractor claims back £20 from HMRC and recharges £100 + VAT.

Similarly same contractor also incures train fare of £100 gross but as it is 0 rates there is no VAT to reclaim but on recharge the contractor has to add VAT to invoice. Total cost £120.

Correct yes?

How does this scenario replay for the flat rate scheme?

Eric Mc

75,674 posts

148 months

[news] 
Tuesday 9th October 2012 quote quote all
There are a number of variations on this.

Standard Rated Trader

The normal assumption is that the trader charges Standard Rate VAT on whatever he charges his customer. So, if he bills his client £1,000.00 for his time and £100.00 to cover travel costs – he needs to charge 20% on the full bill of £1,100.00. Even if the provider of the travel is not charging VAT to him – such as on train or air fares – he should still charge the VAT on those travel costs when he is billing his own customer.

There is an exception to this however. If the trader is recharging EXACTLY what he was billed by the train or air fare, he does not need to raise any VAT on the pure recharge cost. However, there must be no element of mark-up or profit in his recovery of this cost from his customer. If there is, he must charge 20% VAT on the full value of the charge.


Flat Rate Trader

He charges VAT to his customer as outlined above.
He declares the Flat Rate % on the full value of the bill he has raised.

sgrimshaw

3,665 posts

133 months

[news] 
Tuesday 9th October 2012 quote quote all
Eric Mc said:
There are a number of variations on this.

Standard Rated Trader

There is an exception to this however. If the trader is recharging EXACTLY what he was billed by the train or air fare, he does not need to raise any VAT on the pure recharge cost. However, there must be no element of mark-up or profit in his recovery of this cost from his customer. If there is, he must charge 20% VAT on the full value of the charge.
Eric,

Travel costs are not classed as disbursements, in the case above you should charge VAT regardless of whether there is a mark up or not.

Specifically states here that VAT should be applied to airfare etc

http://www.hmrc.gov.uk/vat/managing/charging/disbu...

Eric Mc

75,674 posts

148 months

[news] 
Tuesday 9th October 2012 quote quote all
Thanks for the clarification.

I always advise my clients to charge VAT and not to go down the disbursments route anyway.

worsy

Original Poster:

1,788 posts

58 months

[news] 
Tuesday 9th October 2012 quote quote all
So what would be correct for flat rate VAT -

Hotel of £100 net £120 gross

Recharge the customer 120 + 20% VAT

Pay the VAT Man Flat Rate

(120*20%) * 14.5% (for example)

or

Recharge the customer 120 and pay the VAT man Flat rate
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Eric Mc

75,674 posts

148 months

[news] 
Tuesday 9th October 2012 quote quote all
Charge your customer what you like - and add 20% VAT onto the bill.

So, if you decide to charge him £100.00 for the hotel costs. You issue him an invoice of £120.00 (£100.00 plus 20& VAT). He will take that from you, hopefully pay you, and reclaim the £20.00 VAT (if he's VAT registered).

If you are a flat rate trader and your Flat Rate % is 14.5%, you apply the 14.5% VAT to the £120.00 amount which will give you VAT to pay of £17.40.


sumo69

1,516 posts

103 months

[news] 
Tuesday 9th October 2012 quote quote all
Spot on - got there before me (as I haven't logged on today until now)

David

sgrimshaw said:
Eric,

Travel costs are not classed as disbursements, in the case above you should charge VAT regardless of whether there is a mark up or not.

Specifically states here that VAT should be applied to airfare etc

http://www.hmrc.gov.uk/vat/managing/charging/disbu...

sumo69

1,516 posts

103 months

[news] 
Tuesday 9th October 2012 quote quote all
The "moral" position on the expense charge is that you should be recharging £100 + VAT as the FRS is benefitting you by retaining some of the VAT on sales to offset the loss on any potential reclaim on your costs.

However, legally you can charge whatever you like so long as your client is willing to pay!

David

worsy

Original Poster:

1,788 posts

58 months

[news] 
Thursday 11th October 2012 quote quote all
sumo69 said:
The "moral" position on the expense charge is that you should be recharging £100 + VAT as the FRS is benefitting you by retaining some of the VAT on sales to offset the loss on any potential reclaim on your costs.

However, legally you can charge whatever you like so long as your client is willing to pay!

David
Yup, this was my opinion too. Thanks for the clarity.

Thanks all
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