[quote=“james, post:1, topic:4675, full:true”]
I know that if a VAT registered business makes purchases on behalf of customers and passes on these costs when invoicing, these can be treated as disbursements for VAT purposes and they don’t have to charge VAT on them. http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm
Some client expenses such as fuel and subsistence can’t be treated as disbursements for VAT purposes (information from very helpful link above). We are on the flat rate scheme for VAT and I’m baffled how to put client expenses through Quickfile. For example, I have a receipt for fuel plus food, total £63.19, of which £10.13 is VAT. If we invoice the customer exactly what it cost (£2.45 zero rated, £50.61 at 20%, total £63.19) we then have a VAT liability of £6.95 (11% of invoice value). Also it’s then included in our turnover. Is this right? Surely there must be some way of a straightforward repayment of expenses as it was bought on the client’s behalf? If the client had given us his credit card to pay for it, it wouldn’t even need to go through our books. Is there an accounting equivalent of doing this?
On the flat rate scheme QuickFile calculates the VAT on the invoice total and will not allow for itemised disbursements. You would need to either adjust the VAT return before submission or issue the disbursement on a separate invoice and mark it as “Out of Scope”.
From what I understand there are quite a number of hoops you need to jump through to qualify a disbursement.
If however your client paid directly for this item then I don’t believe you need to invoice for it all.
This would definitely be the easiest way to go - and cheapest for the client!
So if disbursement’s not an option I just invoice at cost and charge VAT as usual. We then have a VAT liability (instead of input & output taxes being identical) but presumably this kind of scenario is taken into consideration when the flat rate allowances are calculated. It also means the client ends up paying more than if he’d paid directly for it himself, but the same would apply if it qualified as a disbursement as he couldn’t claim the VAT back on the original purchase.
In the case you described, keeping the expense off-invoice would be the way to go.
Having discussed this with our accountant, I am told that disbursements on FRS are a non-starter, the criteria I understand is very strict and most won’t qualify.
I myself am not an accountant so can only recommend seeking professional advice, particularly if you’re dealing with material amounts. VAT is a very complex area of accounting.