Editorial team
AccountingWEB.co.uk
Share this content
0
12
7681

-Plumber - VAT on recharge of expenses/Congestion charge

A plumber has had invoices printed which break down his charges to the following headings :

- Labour
- Materials
- Parking
- Congestion charge

He is then charging VAT on the subtotal of all of the above. The materials have an element of profit in them but the parking and congestion charge are recharged at "cost".

Would it be more appropriate to treat the parking/congestion charge as "disbursements" with no VAT charged on them?

SloMo

Replies

Please login or register to join the discussion.

I agree that it is not a disbursement
and know of a small one man company who treated expenses in this way for one particular non VAT registered client (on their instructions).

Guess who had a VAT inspection?

Result was a £4,500 VAT bill. The end client was not VAT registered and agreed to stump up £2,000 out of goodwill as they had wrongly told him how to do it but it still cost the company £2,500. A fair amount for a one man band to pay.

Thanks (0)

Never mind logic
better to observe the law. Absolutely no chance of it being a disbursement. It is just a way of charging for the supply he has made. The supply of services is standard rated.

He has not made a supply of passenger transport. Nor did the client travel by train. End of, I'm afraid.

Thanks (0)

There is no
logic to the argument.

A disbursement is clearly defined. Some of the conditions may have been met by the plumber (passing on at cost only and identifying separately) but every one of the 8 conditions must be met before disbursement treatment applies. These require the client to be the beneficiary of the expense, the client to be responsible for the expense etc etc. The idea of the cost being incurred for a single client only is a complete red herring - travel costs are an inevitable expense of a tradesman's activities - they are his costs and his costs alone. If you want to argue this in front of HMRC, good luck to you - you might be successful but that down't mean you are correct.

Thanks (0)

Don't shoot the messenger!
I can only report what I have seen and the arguement made in support of (in this particular case) train travel as a disbursement. There is some logic to the arguement.

Thanks (0)

one client = disbursement?
Nonsense.

On that basis, the bank charge incurred by a solicitor in transferring funds to an individual client's own bank account would be treated as a disbursement (the charge could not be described as relating to any other client). I'd like to see someone try to argue disbursement treatment in that case - but then they may be lucky enough to come up against as incompetent an Officer as James appears to have met.

Thanks (0)

James
Aren't you making something that's really pretty straightforward sound terribly complicated?

Thanks (0)

Not a disbursement
This is most definately NOT a disbursement. The disbursement rules are quite specific.

Just becuase a HMRC VAT Officer hasn't picked up on it, doesn't make it correct - it just suggests the Officer didn't know his own subject (common) or was too lazy to do a proper review (also common).

A VAT inspection is an inspection, not an audit and I've reviewed clients who have had a 'clean bill of health' after a VAT visit, only to find they are owed money by HMRC or have messewd up big time and nobody noticed.

Thanks (0)

It seems to depend on the VAT Officer
As I said, I have seen it accepted but the attitude of VAT Officers seems to vary and of course you can never get far arguing with officer B that officer A allowed it.

My understanding is that if you can prove that an expense relates to just one client you can get it accepted as a disbursement. The real problem is getting clients to obtain and keep acceptable evidence and to be honest most VAT officers probably wouldn't believe them anyway.

However it is possible. Of course in B2B situations with both parties registered there is no problem apart from cash-flow (hardly likley to be major) and I think most people err on the side of caution anyway.

Thanks (0)

Best not to.....
HMRC VAT notice 700 (s 25.1) has specific detailed guidance on adding VAT to items recharged.

I Have seen an example where expenses recharged were treated as disbursements and no VAT added only to be picked up on inspection by HMRC and the additional VAT due claimed from the trader. In this case the end user was a non VAT registered customer who the trader was unable to approach to recover the VAT he had subsequently paid.

Thanks (0)

There may be occassions
when you can avoid charging the VAT.

I've seen it argued - and accepted - that if a cost such as travel refers to just one client then you don't have to charge VAT.

So, with the plumber it could be argued that if a parking charge related to just one job it could be classified as a disbursement. This would be more difficult in respect of the Congestion Charge unless he really only entered the zone to carry out one job.

Thanks (0)

Agree with John
VAT should be charged on all expenses that he has incurred in going about his business. Now, if he had (for some reason) paid his customer's congestion charge that would be a disbursement, but not if he is paying his own.

Thanks (0)

Not disbursements
They don't qualify as disbursements because the end customer doesn't receive the actual benefit.

John

Thanks (0)