Hi, put this on another category, but thought it would be better here.
A disbursement query, I have just taken on an estate agent manages property lettings for landlords. Basically they take a commission on the incoming rent as payment for this. As part of their service, they organise repairs on the properties, pay the supplier, and pass on the cost of the repair to the landlord (they just deduct the commissions and repairs off the rent collected and pay the landlord the balance).
I would have treated repairs these as simple disbursements as I would have classed them as meeting the HMRC disbursement regulations, but am now a bit concerned after speaking to a colleague who had an issue with disbursements.
Basically, a few years ago my colleague worked with a small not for profit company that ran a volunteer car scheme. They took bookings for people needing to get to hospital and organised a volunteer driver to collect them. the volunteer driver was then paid expenses of 40p per mile, 20p per mile was collected by the driver from the person travelling and the company paid the volunteer the other 20p per mile which they raised through fundraising. During a VAT inspection, the HMRC insisted that the 40p per mile volunteer payment was not just a volunteer expense to be disbursed, but was a charge that was subject to VAT. I thought this awfully unfair considering that the organisation was set up by cancer survivors primarily to take people to their cancer treatments in a hospital over 60 miles away. These people are usually unemployed or off work on long term sick etc and would be more affected by the price increase but the HMRC insisted that they had to pay VAT, and hit the company with a fine of backdated payments for 3 years!
From what I seen of the disbursement regulations, if you pay a bill (ie a repair on a property) on behalf of another party, and pass on that exact amount, no vat is due. But then I would have taken the same view of the 20p per mile that was collected off the person travelling on the volunteer car scheme.
Up to now, the agency has just been paying the repairs, and charging the exact amount through to the landlord. The pay VAT on their commissions collected from the landlords which is usually a percentage of the rental income. A lot of the suppliers they use are small sole traders and do not charge VAT, for the suppliers that do, they agency just passes on the cost plus VAT. If the agency had to disburse all repairs and add on 20% VAT, it would be quite expensive for a small landlord who would not be VAT registered, and they may well take their business elsewhere...
Anyone have any experience of this? Got nowhere with the VAT helpline (didn't think I would anyway) so I have written to HMRC for a more detailed answer and got a bulls**t respnse.
