<!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0cm; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Arial; mso-fareast-font-family:"Times New Roman"; mso-bidi-font-family:"Times New Roman"; mso-ansi-language:EN-GB;} @page Section1 {size:612.0pt 792.0pt; margin:72.0pt 90.0pt 72.0pt 90.0pt; mso-header-margin:36.0pt; mso-footer-margin:36.0pt; mso-paper-source:0;} div.Section1 {page:Section1;} --> We operate a 'people stills' training company with just two partners, no staff; flat-rate VAT registered.
Some of our business comes from other larger training companies; we train on their behalf using their name (say ABC Training); normally this involves us travelling and there is a culture in the industry to invoice expenses (hotel, food, public transport and mileage) back to the client: ABC Training, who in turn invoice their client (the company we trained).
The query revolves around: a correct understanding of HMRC VAT Public Notice 700 Section 25.1: disbursements
We understand the correct procedure is to bill disbursements in accordance with HMRC VAT Public Notice 700 Section 25.1. and beleive this notice advises that we should be charging VAT on top of VAT inclusive bills (in fact for all rechargeable bills even those that are zero rated, such as train fares and airfares etc.,). However they ask we follow..
<!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0cm; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Arial; mso-fareast-font-family:"Times New Roman"; mso-bidi-font-family:"Times New Roman"; mso-ansi-language:EN-GB;} @page Section1 {size:612.0pt 792.0pt; margin:72.0pt 90.0pt 72.0pt 90.0pt; mso-header-margin:36.0pt; mso-footer-margin:36.0pt; mso-paper-source:0;} div.Section1 {page:Section1;} --> First, as a VAT registered company your responsibility is to make sure your invoice is fully compliant with the legislation, which unhelpfully changes all of the time! As a result your invoices should charge 17.5% VAT as a flat rate, unless the item is exempt - such as a book or newspaper, or carries the lower 5% VAT rate.
The second issue is one of practicality. We will only accept invoices from you detailing two costs - either training delivery fees or the associated expenses costs. These costs should be shown at the net cost to you as, since you are a VAT registered business, you can re-claim vat. It is easiest to use an example:
Example 1: If Heather stays in a hotel and it costs £100 plus vat she will settle her bill at £117.50. You will go on to reclaim £17.50 back through your VAT return and will have incurred a net expense to your business of £100. You will then re-charge this bill to us at £100 plus VAT within the context of your invoice.
Example 2: If Heather buys a train ticket that costs £50 there is not any VAT on it. You have therefore incurred a net expenses to your business of £50. You will then re-charge this bill to us at £50 plus VAT within the context of your invoice, but in this instance we would be able to re-claim the VAT you have charged us through our VAT return and neither you nor we are disadvantaged.
What would be wrong is if you invoiced us, using the first example, for £117.50 plus vat for the hotel room, as you would have gained a pecuniary advantage equivalent to the VAT you will re-claim and we would have incurred a greater cost than we should.
I believe the correct way is that you do not make a profit on the expenses if expenses are invoiced in this way. So in the case of the hotel example you would invoice out £100 plus vat and in the situation of the train fare it would be £50 plus vat even though theer is no vat being charged to you. Other than that youinclude whatever expenses you think you are going to incur, add on a margin as profit and charge it as a complete price within your training fee.
I ask as I have had conflicting answers.. one suggesting i must comply with HMRC VAT Public Notice 700 Section 25.1: disbursements, but i cannot get my head around HMRC VAT Public Notice 700 Section 25.1: disbursements, and was hoping someone on this forum could clarify?
Sincerely
-- Edited by sgrahams on Tuesday 27th of April 2010 04:39:01 PM
I don't think the expenses you descrice would be classified as disbursements for VAT purposes.
To qualify as a disbursement several conditions must be met, including:
'your client actually received and used the goods or services provided by the third party (this condition usually prevents the agents own travelling and subsistence expenses, telephone bills, postage, and other costs being treated as disbursements for VAT purposes)'
So if they are not disbursements, then it comes down to charging an amount and adding VAT, as usual.
-- Edited by RuthA on Tuesday 27th of April 2010 05:06:36 PM
clarifying the following for me would be appreciated;
AAA asks ME to train BBB (BBB believes I work for AAA), who is the client and who is the third-party?
When u say, 'then it comes down to charging an amount and adding VAT, as usual.' if I pay a hotel per night £117.50 inc VAT; do I invoice AAA £100, and claim the VAT (£17.50) back from VAT ( I cannot as I am flat rate VAT), or do i ask AAA to claim the VAT back?
I ask because others companies we work for ask we invoice Gross whereas AAA ask we invoice expenses Nett?
Sincerely,
-- Edited by sgrahams on Tuesday 27th of April 2010 06:10:41 PM
-- Edited by sgrahams on Tuesday 27th of April 2010 06:12:12 PM
What I meant was that if it's not being treated as a disbursement, then it's down to you and your client - AAA - to negotiate your terms.
It's going to come down to what is acceptable to you both.
The idea behind the flat rate scheme is that since you pay HMRC less than 17.5%, you are effectively claiming back VAT paid, although in practise you will be slightly over or slightly under paying, compared to if you weren't flat rate.
Is it worth considering moving off the flat rate scheme? Would it cause you much extra work, would it be worth while? It may be something to consider if you are concerned that you will be losing out with the flat rate scheme.
