Hope someone can help me - VAT confuses me!
We are buying a service on behalf of the client. We’re not adding a mark up as they pay for our services to go along with it (invoiced separately).
So basically our supplier is invoicing us with no VAT because of reverse charge, and we then need to invoice our client. If we treat this as a disbursement, what rate would we charge to the client - 0% or 20%?
We’re also on cash accounting, would we be able to charge the client in advance for the service so we’re not out of pocket?
Hope that makes sense!
I’m not an accountant but my gut feeling from what I’ve read of the HMRC guidance on disbursements is that this isn’t a disbursement. Something is only a disbursement if it’s basically being supplied to the client but you’re paying for it, and the client knows that this is the arrangement and it’s not something being supplied directly by you. If it’s something that has been supplied to you and then you’re selling it on to the client then it’s not a disbursement but a re-charge, and you need to charge VAT on your onward sale.
If your client is themselves VAT registered then it makes no difference to them so you might as well take the easy route of doing the reverse charge yourself and then re-selling the service to your client at 20% (which they can reclaim).
If your client is not VAT registered, then if the supplier were supplying the client directly they would have added their own VAT to their invoice rather than supplying on a reverse charge basis (either their home country VAT or 20% UK VAT under MOSS depending exactly what kind of service we’re talking about). The fact that the supplier has invoiced you as reverse charge suggests that they think the supply is to you, not to your client, and so it doesn’t feel like it should be a disbursement, so again you end up having to charge your own 20% VAT on the re-charge.
Thanks Ian, appreciate you replying.
To give it a bit of context it’s relating to Google. Our customer wants to run a campaign but we’re looking after it for him. He knows the payment would be to Google (and knows he would pay us a sum for our services). He is VAT registered too.
My thought was if we were charging them VAT we’d maybe end up with a bit of a hefty VAT bill (albeit, our client would be paying us first).
You say you’re on cash accounting so you wouldn’t have to pay over the VAT you’ve charged the client until after they’ve paid you.