Freelancer charging VAT on mileage rates?
Discussion
You won't fall foul of HMRC as long as you've got a VAT invoice.
It's weird that he is charging VAT as (theoretically) it doesn't benefit him either. He's probably doing it because he's not sure and is erring on the side of caution. If it was me I'd tell him that we are paying the HMRC rate, not the HMRC rate plus VAT and to submit an amended invoice.
It's weird that he is charging VAT as (theoretically) it doesn't benefit him either. He's probably doing it because he's not sure and is erring on the side of caution. If it was me I'd tell him that we are paying the HMRC rate, not the HMRC rate plus VAT and to submit an amended invoice.
Countdown said:
You won't fall foul of HMRC as long as you've got a VAT invoice.
It's weird that he is charging VAT as (theoretically) it doesn't benefit him either. He's probably doing it because he's not sure and is erring on the side of caution. If it was me I'd tell him that we are paying the HMRC rate, not the HMRC rate plus VAT and to submit an amended invoice.
I'm afraid all of this in incorrect. Be aware that just because a VAT invoice shows something, it doesn't mean it's correct and that you can act with impunity.It's weird that he is charging VAT as (theoretically) it doesn't benefit him either. He's probably doing it because he's not sure and is erring on the side of caution. If it was me I'd tell him that we are paying the HMRC rate, not the HMRC rate plus VAT and to submit an amended invoice.
Generally, a "freelancer" would be (and should be) considered a separate trading entity in its own right - and not some sort of a pseudo-employee.
Freelancers therefore, in my view, should not really have any need to disclose mileage rates on their invoices as a separate disclosure. That is something employees do when making expense claims from their employers.
"Freelancer" bills should effectively show what they consider to be the fair and agreed charge they raise for doing the work they perform for you. After all, when you buy any goods or services from a "normal" business you do not see itemised out on those invoices their costs/overheads etc. The recovery of such costs should be built into the overall charge being raised for the work being done.
And, of course, if the entity billing you is a VAT registered entity, then they should charge VAT on the FULL value they are billing you - whether they itemise out some costs separately or not.
There is one exception to this - and that is when a business is asking for a reimbursement for costs they have covered on your behalf. A good example is a garage which carries out an annual service and an MOT for you. They will normally show the fee they are raising for the service and charge VAT on it. They will itemise out the charge for the MOT and not charge any VAT on that. MOT charges are VAT exempt and are initially paid by the garage. As long as they are only passing on the MOT charge to their customer WITHOUT adding any profit aspect to it, they are allowed to not charge any VAT on the MOT recharge.
Solicitors will do something similar when recharging search fees etc to their clients.
On what grounds would you think recharged mileage costs are Exempt from VAT?
Freelancers therefore, in my view, should not really have any need to disclose mileage rates on their invoices as a separate disclosure. That is something employees do when making expense claims from their employers.
"Freelancer" bills should effectively show what they consider to be the fair and agreed charge they raise for doing the work they perform for you. After all, when you buy any goods or services from a "normal" business you do not see itemised out on those invoices their costs/overheads etc. The recovery of such costs should be built into the overall charge being raised for the work being done.
And, of course, if the entity billing you is a VAT registered entity, then they should charge VAT on the FULL value they are billing you - whether they itemise out some costs separately or not.
There is one exception to this - and that is when a business is asking for a reimbursement for costs they have covered on your behalf. A good example is a garage which carries out an annual service and an MOT for you. They will normally show the fee they are raising for the service and charge VAT on it. They will itemise out the charge for the MOT and not charge any VAT on that. MOT charges are VAT exempt and are initially paid by the garage. As long as they are only passing on the MOT charge to their customer WITHOUT adding any profit aspect to it, they are allowed to not charge any VAT on the MOT recharge.
Solicitors will do something similar when recharging search fees etc to their clients.
On what grounds would you think recharged mileage costs are Exempt from VAT?
I always charged VAT on mileage when I was self-employed and VAT registered. You add up the bill, then you add the VAT. My clients were also registered and all of their Accounts Payable departments were perfectly happy. As you know it's simply reclaimed.
Not sure what the 'HMRC rate' has to do with it - he can charge you whatever he likes for mileage if you accept it.
Not sure what the 'HMRC rate' has to do with it - he can charge you whatever he likes for mileage if you accept it.
Eric Mc said:
And, of course, if the entity billing you is a VAT registered entity, then they should charge VAT on the FULL value they are billing you - whether they itemise out some costs separately or not.
That's how I understood it.Edited by Simpo Two on Tuesday 28th December 14:23
Eric Mc said:
Generally, a "freelancer" would be (and should be) considered a separate trading entity in its own right - and not some sort of a pseudo-employee.
Freelancers therefore, in my view, should not really have any need to disclose mileage rates on their invoices as a separate disclosure. That is something employees do when making expense claims from their employers.
"Freelancer" bills should effectively show what they consider to be the fair and agreed charge they raise for doing the work they perform for you. After all, when you buy any goods or services from a "normal" business you do not see itemised out on those invoices their costs/overheads etc. The recovery of such costs should be built into the overall charge being raised for the work being done.
And, of course, if the entity billing you is a VAT registered entity, then they should charge VAT on the FULL value they are billing you - whether they itemise out some costs separately or not.
There is one exception to this - and that is when a business is asking for a reimbursement for costs they have covered on your behalf. A good example is a garage which carries out an annual service and an MOT for you. They will normally show the fee they are raising for the service and charge VAT on it. They will itemise out the charge for the MOT and not charge any VAT on that. MOT charges are VAT exempt and are initially paid by the garage. As long as they are only passing on the MOT charge to their customer WITHOUT adding any profit aspect to it, they are allowed to not charge any VAT on the MOT recharge.
Solicitors will do something similar when recharging search fees etc to their clients.
On what grounds would you think recharged mileage costs are Exempt from VAT?
It would be very unusual not to itemise out expenses separately. Freelancers therefore, in my view, should not really have any need to disclose mileage rates on their invoices as a separate disclosure. That is something employees do when making expense claims from their employers.
"Freelancer" bills should effectively show what they consider to be the fair and agreed charge they raise for doing the work they perform for you. After all, when you buy any goods or services from a "normal" business you do not see itemised out on those invoices their costs/overheads etc. The recovery of such costs should be built into the overall charge being raised for the work being done.
And, of course, if the entity billing you is a VAT registered entity, then they should charge VAT on the FULL value they are billing you - whether they itemise out some costs separately or not.
There is one exception to this - and that is when a business is asking for a reimbursement for costs they have covered on your behalf. A good example is a garage which carries out an annual service and an MOT for you. They will normally show the fee they are raising for the service and charge VAT on it. They will itemise out the charge for the MOT and not charge any VAT on that. MOT charges are VAT exempt and are initially paid by the garage. As long as they are only passing on the MOT charge to their customer WITHOUT adding any profit aspect to it, they are allowed to not charge any VAT on the MOT recharge.
Solicitors will do something similar when recharging search fees etc to their clients.
On what grounds would you think recharged mileage costs are Exempt from VAT?
Why should any business do this?
Does your accountant add mileage to his invoice?
Does your solicitor?
Does your dentist?
Does your doctor?
I have always advocated to any of my clients NOT to try to recover costs in this way as it is an indicator that they are still thinking like an employee - and if they want to wave a red flag to HMRC, especially if IR35 is a risk - then you should not be doing this.
Just bill your customer fully and properly. It's none of your customers' business (literally) what your costs are - mileage or otherwise.
Does your accountant add mileage to his invoice?
Does your solicitor?
Does your dentist?
Does your doctor?
I have always advocated to any of my clients NOT to try to recover costs in this way as it is an indicator that they are still thinking like an employee - and if they want to wave a red flag to HMRC, especially if IR35 is a risk - then you should not be doing this.
Just bill your customer fully and properly. It's none of your customers' business (literally) what your costs are - mileage or otherwise.
2 GKC said:
That’s nonsense. Dentists and doctors don’t tend to run up expenses. I’ve never seen an accountant or lawyer bill without expenses separately shown.
Fees are more or less always agreed excluding expenses.
It probably depends on the profession and what you class as expenses. Dentists rarely travel to see patients but have lots of expenses, eg cost of materials. These are amalgamated (no pun intended!) into their overall fee.Fees are more or less always agreed excluding expenses.
Let's say I was doing some filming which required an overnight stay in a hotel. I could either quote:
1) 1 day filming: £800 + expenses at cost + VAT
or
2) 1 day filming inc. accommodation: £1,000 + VAT
As long as the client knows what he'll be paying, that's the main thing IMHO.
2 GKC said:
That’s nonsense. Dentists and doctors don’t tend to run up expenses. I’ve never seen an accountant or lawyer bill without expenses separately shown.
Fees are more or less always agreed excluding expenses.
I have worked in private practice accountants firms for virtually all my working life and I can tell you quite categorically that very few professional accountancy firms itemise out items such as staff or partner mileage. I've never seen it from a solicitor either.Fees are more or less always agreed excluding expenses.
As I said earlier, solicitors will often show a pure recharge to cover a specific non-VATable item, such as search fees etc, but they don't reclaim mileage.
I run my own practice now and I never, ever show separate mileage claims on my invoices.
Eric Mc said:
Why should any business do this?
I have always advocated to any of my clients NOT to try to recover costs in this way as it is an indicator that they are still thinking like an employee - and if they want to wave a red flag to HMRC, especially if IR35 is a risk - then you should not be doing this.
Just bill your customer fully and properly. It's none of your customers' business (literally) what your costs are - mileage or otherwise.
I don't agree with that. All sorts of trades bill for time and mileage, and sometimes time travelled. Quite normal IMO.I have always advocated to any of my clients NOT to try to recover costs in this way as it is an indicator that they are still thinking like an employee - and if they want to wave a red flag to HMRC, especially if IR35 is a risk - then you should not be doing this.
Just bill your customer fully and properly. It's none of your customers' business (literally) what your costs are - mileage or otherwise.
They can if they want to. I prefer not to myself as it's generally nobody's business what my costs are. Very few of my clients do either - and not because of any specific advice I give them.
As I said earlier, if you want to distance yourself from any sort of "employment" accusation by HMRC, NOT trying to recover specific costs through your invoicing is advisable, in my view.
I've even seen instances where small businesses have been asked by the organisations they are doing the work for to supply the original receipts to back up their "Expense Claims". That is a real "No No" in my view. Firstly, because the "contractor" business needs to keep those original receipts/vouchers/invoices etc as evidence for their own accounting records. At best they should only supply copies if asked.
Secondly, asking an individual to provide original documents to support an expense claim is tantamount to telling that person that they are being treated like an employee when it came to "expense claims". And that is like gold dust to HMRC if they are looking at an IR35 assessment.
As I said earlier, if you want to distance yourself from any sort of "employment" accusation by HMRC, NOT trying to recover specific costs through your invoicing is advisable, in my view.
I've even seen instances where small businesses have been asked by the organisations they are doing the work for to supply the original receipts to back up their "Expense Claims". That is a real "No No" in my view. Firstly, because the "contractor" business needs to keep those original receipts/vouchers/invoices etc as evidence for their own accounting records. At best they should only supply copies if asked.
Secondly, asking an individual to provide original documents to support an expense claim is tantamount to telling that person that they are being treated like an employee when it came to "expense claims". And that is like gold dust to HMRC if they are looking at an IR35 assessment.
Eric Mc said:
I have worked in private practice accountants firms for virtually all my working life and I can tell you quite categorically that very few professional accountancy firms itemise out items such as staff or partner mileage. I've never seen it from a solicitor either.
As I said earlier, solicitors will often show a pure recharge to cover a specific non-VATable item, such as search fees etc, but they don't reclaim mileage.
I run my own practice now and I never, ever show separate mileage claims on my invoices.
You’ve really never seen a firm show out ofAs I said earlier, solicitors will often show a pure recharge to cover a specific non-VATable item, such as search fees etc, but they don't reclaim mileage.
I run my own practice now and I never, ever show separate mileage claims on my invoices.
Pocket expenses separately on an invoice. Genuinely don’t think I’ve ever seen a firm not do that
2 GKC said:
Eric Mc said:
I have worked in private practice accountants firms for virtually all my working life and I can tell you quite categorically that very few professional accountancy firms itemise out items such as staff or partner mileage. I've never seen it from a solicitor either.
As I said earlier, solicitors will often show a pure recharge to cover a specific non-VATable item, such as search fees etc, but they don't reclaim mileage.
I run my own practice now and I never, ever show separate mileage claims on my invoices.
You’ve really never seen a firm show out ofAs I said earlier, solicitors will often show a pure recharge to cover a specific non-VATable item, such as search fees etc, but they don't reclaim mileage.
I run my own practice now and I never, ever show separate mileage claims on my invoices.
Pocket expenses separately on an invoice. Genuinely don’t think I’ve ever seen a firm not do that
Still don’t agree. I’ve seen invoices from all big 4, most of the next tier and a lot of the smaller firms local to me, and they all show out of pocket expenses as a separate line item on their bills. A lot of the cheeky sods are charging 5% admin fees now too but that’s a different story.
2 GKC said:
Still don’t agree. I’ve seen invoices from all big 4, most of the next tier and a lot of the smaller firms local to me, and they all show out of pocket expenses as a separate line item on their bills. A lot of the cheeky sods are charging 5% admin fees now too but that’s a different story.
By 'Big 4' are we taking PWC etc? If so, well that explains it.Gassing Station | Finance | Top of Page | What's New | My Stuff