My client is a self employed courier driver. a few questions 1. Do you think it would be benificial for him to register for VAT to claim back his VAT on fuel receipts. 2. If he is claiming the mileage ie 40p for 10,000 miles etc etc.. Can he still claim the VAT back on fuel receipts. 3. also i take it thismeans he would also have to charge vat on invoices etc etc...
2 and 3 would be a no and a yes 1 however would depend on whether he has supplies that are nothing to do with the cost of sale, as vat reclaimation in my view only becomes profitable (for want of a better explaination) when you have expenses that aren't part of the cost of sale. So you may have a supply that you need and you pay vat on but isn't a product that is sold on therefore you need to charge vat on it, i.e packaging.
just to further clarify Ian's point and to emphasise information available from the HMRC website.
The VAT claimed on mileage is instead of VAT claimed on fuel receipts however, you still need the fuel receipts to at least support the VAT claim on the mileage.
As you can see the rate varies between 7p and 20p dependent upon fuel type and engine size. The rates quoted can be taken as the VAT element of the mileage rate (see Brewsie's link).
The bit that I want to emphasise is that you need VAT receipts for all mileage paid at the advisory rates to support any claim.
The 40p/25p is aimed at people using their own vehicle on business. If your client has purchased and is running his vehicle through the company then mileage would not be applicable and you would instead use the direct method where VAT on invoices is claimed and all costs are put through the company as expenses.
If the client is registered for VAT then he must charge VAT on his invoices and the VAT reclaimed on fuel and maintenance would be deducted from this.
If your client is winning business based on price alone then registering for VAT may reduce the cost effectiveness of choosing his services over alternatives so could have an adverse effect on his business.
I think that the main thing at the moment is to emphasise to your client that he is going to have to either charge 17.5% more or take a 17.5% cut in profits.
Also, emphasise (I know that a lot of clients get this bit mixed up) that they can EITHER claim mileage OR put the fuel, maintenance and purchase though the company. How many times have we all seen clients paperwork where they think that they can do both!
Right, enough for now. I'm sure that will spark some responses!
All the best and talk soon.
Shaun.
P.S. As a self employed bod if your client does in fact go over the VAT registration threshold then when they change their vehicle they will no longer be able to claim mileage! (strange but true). At that time you would need to make a call as to whether they incorporate or expense.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Stuart, further to the above. If your client is subcontracting out to other vat registered businesses then it is definitely in his interest to register for VAT as he will not become uncompetitive since his customers will claim the vat back. I would sayit is probably more beneficial not to go the mileage route but to claim actual fuel, repairs etc expenses and especially so if he bought a van and was charged vat as he would be able to claim that back too.
