My client has just issued an invoice with a large amount of disbursments and expenses. While it is clear how to deal with those to which VAT is not applicable I am not quite sure what should happen to the ones where he paid the VAT. For example: he purchased an item on behaf of the client which was installed at the client's address for £170 plus £29.75 VAT. The amount of VAT is being reclaimed from HMRC. He then adds £170 to disbursments and £29.75 to the total VAT of the invoice. Is this the way to do it? What would happen to the expenses that already have a VAT, would VAT then be added on top of the full amount or only the net?
Thank you to everyone who could clarify this for me.
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Replies (3)
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HMRC Guidance
Any use??
http://www.hmrc.gov.uk/vat/managing/charging/disbursements.htm
Regards
Robert Meredith
Sutherland Black
Thank you but....
Thank you for the response and sure I have checked that before posting a question here. All HMRC's examples refer to disbursments and expenses on which VAT has not already been charged hence I am not quite sure. Maybe I have misread something there
Incidental to supply
My unsderstanding is that if the disbursements are incidental to the supply then VAT should be fully charged on them as well, even to the extent that the disbursements themselves do not contain or attract VAT.
If the disbursements are not incidental to the supply then they follow the normal rules of purchase and supply where input tax can be claimed, on your purchase but needs to be charged on the ongoing supply of Vatable items.
Again this can be complicated as to whether for the disbursements you are acting as either principal or agent with your client in respect of the disbursements. This again will impact the treatment. Acting as agent you should not claim any input tax and must pass over the invoice to your client for them to make any appropriate claim. Acting as principal then the normal standard rules applpy.