Getting OCD about trying to answer my own question. Hope someone else can come up with an answer.
The scenario:
A very specialist training company uses a combination of internal staff, and external consultants from within the industry to deliver training. Many of the courses require travel, overnight accommodation, and subsistence.
When the courses are booked the training company arranges all the accommodation in advance, and pays for it, claiming back the VAT on the invoices.
My question is - Should they?
As the freelance consultants are engaged to carry out a particular service, to me the accommodation etc, is supplied to them, and should be an expense of the freelance consultant, who in turn can incorporate these expenses into his own invoice.
I have scoured just about everything I can find regarding expenses and disbursements but I can only find reference to how a consultant recharges an expense once he has paid for them himself.
As the accommodation is needed for them to put on the training courses then I would says it's an expense and theyre good to claim the vat... I would see it as an indirect overhead, one that is essential in the line of work they do.
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Please correct me if I'm wrong... I am only human sucking up knowledge... Sometimes bits leak out!
While on the surface, I agree with that, my nagging doubt is that for the consultant to provide his service it is him that needs to stay in the hotel, not the client company aquiring his services. It is not putting on the training course that requires the consultant to stay in the hotel (the hotel is not the venue for the training course either), it's the location, which the consultant has agreed to perform at, if you see what I mean.
HMRC give an example of an IT consultant flying to Scotland, which the client company require him to do, and agree they will accept travel costs (otherwise they cannot meet) but HMRC say that this is an expense of the consultant which he enters on his accounts as an expense, and recharges as a seperate charge on his invoice, as part of the service they provided (which in turn increases his turnover).
Maybe I'm over thinking this
Cheers
Bill
-- Edited by Wella on Thursday 27th of October 2011 08:12:50 PM
general approach for this sort of scenario is that where the consultant is expected to do a job of work for a period of time for a client then it is down to them to factor the costs of accomodation and transport into their fee's. (it's not the companies issue where the consultant comes from. If I work in Scotland I don't expect companies to pay my hotel bills where someone in Scotland gets paid nothing towards there accomodation. You just factor it into your fee's).
For one off expectations to be away from the normal place of work overnight, perhaps to visit a client site then clients often arrange the accomodation and take care of everything on the consultants behalf.
The preferable arrangement is always however that the consultant pays the hotel themselves and then reclaims the cost by invoicing the client for the expense.
Where matters get confussed is there companies try to hybridise the arrangements and pay lower fee's to consultants on the basis of providing accomodation. That's where the wheels come off the wagon as it becomes a benefit to the contractor as though part of their remuneration package.
Don't think that you're overthinking this at all. It's an interesting area with several interpretations.
Have you got a link to the HMRC page that you quoted as would be interested to read that one,
cheers matey,
Shaun.
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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.
This is VAT700 link, have a look at section 25, when you have time.
What I can't get my head around is that it inadvertently gets around claiming VAT.
Most of the consultants carry out their services, as an addition to their normal employed income, and are not VAT registered, therefore the cost to the client company would be greater, because the consultants will charge vat inclusive expense (But not recoverable). The way it is running at the moment, (it appears to me) that the consultant gets an artificial benefit of a lower turnover, and the client company gets the benefit of claiming back VAT for a supply to another business. In section 25 of VAT 700, there is an example of a bank adding an expense to their fees but because they are making an exempt supply, the customer cannot claim the original VAT back because it has been swollwed up in the banks expenses.
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