Raising invoice with no VAT

Hi folks, bit of a funny one this and tying me up in knots…

We recently had some electrical work done and have paid the contractors invoice, let’s say it was £500 inc VAT. Our landlord has agreed to foot 50% of the bill and wants an invoice for it. When we’ve done this in other systems, we’ve set it as “outside the scope etc”, but what is the best way to raise an invoice to reclaim the £250 back from our landlord, without losing some of that £250 in flat rate VAT? ie if it’s straight forward “income”, we’d lose 12% VAT on it…

Any bright ideas? Thanks!

Can you randomly decide what not to charge VAT on? I was under the impression under the FRV scheme you are still charging VAT on invoices/income?

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You realise you have to charge vat on the invoice you raise to the landlord if your on a frs don’t you?

Why do you consider it out of scope?

You also realise you get tax relief on the full amount so I don’t understand what you think youre losing

OK, I guess where I was tying myself up in knots is, 3 ways of looking at paying the bill potentially…

  1. the contractors bill was £500 inc VAT, ie the tax man gets £83 of this if we pay the bill and the landlord is nothing to do with it.

  2. if the contractor sends two invoices out for £250 inc vat, one to us and one to the landlord, the tax man still gets £83 in total.

  3. if we pay the bill of £500 inc VAT and recharge half of it to the landlord, adding VAT to it, the tax man now gets £133 ie. the £83 we originally paid plus the £50 we now add to the invoice to the landlords £250.

I guess where I’m confused (and where the previous accountant therefore said it was out of scope) is that it’s the one service (provided by the contractor, not us), but splitting the bill and adding VAT to half that already has VAT on it ends up with even more VAT going to the tax man…

If you are on a flat rate scheme the contractors bill is an expense. It doesn’t go to the vat man. Only a percentage of your turnover does.

Therefore nothing there goes to hmrc.
You claim £500 inc vat as your expense against tax (claiming the full 20% vat to reduce your tax)

You recharge the landlord 250+vat. (300) hmrc get whatever percentage flat rate you are on. Not £50.

I think you need to ask your accountant to explain it to you.

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Even if that were true (which it isn’t) you still can’t just decide to not charge VAT on a whim.

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THanks all for your iput, I’ve raised it with the accountant, let them do their bit :slight_smile:

@Lurch is absolutely correct, you can’t decide what to charge VAT on and what not - it all depends on the nature of the supply.

However, if you charge the landlord the £250 plus VAT at £50, then HMRC will only get your Flat Rate % on that £300 (presumably less than 20%), and you get to keep the difference. That’s part of the beauty of the FRS. I don’t see why you have an issue with it personally.