We pay for a worker via an agency and they charge the rate plus VAT, I'm okay with that. However we also re-imburse the worker his travel expenses through the agency and this is where the problem arises. For example he has a travel bill for £120 Gross which the agency refunds back to him.
Should the agency on their invoice to us
1. Pass this on as a dispersment - Gross as per the workers receipt and not add further VAT - so we get charged £120
2. Reclaim the VAT as an input in their books then recharge us the NET amount £100 plus VAT £20 = £120
3. Charge the Gross amount plus VAT so in the instance above they charge us £120 Net with Vat £24 = £144 Gross
Currently the agency is doing option 3.
We get all copies of the travel expeses and we charge these on to out customer. Our customer said he will pay the travel exepnses so we must give him the original expense of £120. This means he is only willing to pay an invoice that has £100 Net, £20 Vat, £120 Gross.
In this instance I am paying out £144 and only getting in £120 so £24 worse off. My input VAT is £24 but my output vat is £20 so i'm reclaiming £4 but still overall I'm £20 worse off. This can't be right. It may seem like a small number but this is just an example, I have many workers through an agency with weekly claims so this figure is adding up.
Do I need to go back to the agency an ask for a VAT credit note or is it a chargeable expenses that my customer should pay or is it a dispersment that my customer should pay.
I've spoken to 3 different people in HMRC and been given 3 different answers so it seem even they don't know.
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kind regards,
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.
The previous link is very helpful. The principle remains true, whether or not the worker is VAT registered. The agency is actually a principle in this instance.
