Charging VAT on receipts under FRS

Charging VAT on receipts under FRS

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I'm a freelancer on the VAT FRS and heard I can add VAT to the receipts of expenses used whilst undertaking work for the client.

So if I'm working for Joe Blogs and buy £1000 of goods/materials as part of my work for him, can I add VAT onto these expenses?

How would I then include this VAT when doing my online VAT return?

Any help appreciated.

Replies (7)

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By mikeyban
31st Mar 2014 07:01

If you are recharging expenses rather than a disbursement .... Then as long as Vatable you charge the client plus 20%.

That figure that includes vat is then used to calculate that which is payable using your industry percentage.

There are no further claim for input tax as the difference between. 20% and that which you have paid is deemed to include any input.

You can claim any equipment on assets that include vat and above £2000.

There are winners and losers and some annoying quirks which your accountant should be able to explain.

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Euan's picture
By Euan MacLennan
31st Mar 2014 10:13

Just to clarify

As you are operating the FRS, you cannot reclaim input VAT (except on assets costing over £2,000), so if you buy materials for (say) £1,000 + VAT = £1,200 and include £1,200 as part of your fee to Joe Bloggs, you will be adding 20% VAT of £240 to the already VAT-inclusive amount of £1,200.  Joe Bloggs will be able to recover the £240, but not the underlying VAT of £200, and you will be paying over VAT at your flat rate on the doubled-up VAT-inclusive total of £1,440.

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Replying to johnny fartpants:
Euan's picture
By Euan MacLennan
31st Mar 2014 16:38

Incorrect inference

fawltybasil2575 wrote:

I  respectfully disagree Euan's implied comment (if I correctly interpret his post) that you must take the "VAT-inclusive" materials cost figure, and then apply VAT to that figure - this would only be correct if you were adding 20%, as a mark-up, to the materials figure, when charging it to the customer.   There is always an "FRS loss", in terms of VAT, where one charges out materials - but of course this "FRS loss" should be more than covered by the profit overall on the operation of the FRS.

I did not say (or imply) that "you must take the "VAT-inclusive" materials cost figure".  I said (and meant) "if you buy materials for (say) £1,000 + VAT = £1,200 and include £1,200 as part of your fee ...".  The cost to the OP of the materials is £1,200 as he cannot reclaim the £200 of input VAT under FRS.  If he does recharge the £1,200 cost + VAT, he will recover his expenditure on the materials and receive an extra £240 to more than cover his additional VAT liability at his flat rate on the additional £240.

If, as you seem to assume (but I must be wary of drawing incorrect inferences!), he recharges only the VAT-exclusive cost of £1,000 + VAT, he will recover exactly his expenditure on the materials, but as you say, will lose out by his flat rate percentage of £1,200.

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RLI
By lionofludesch
31st Mar 2014 17:00

In general ......

You wouldn't benefit from re-charging standard rated expenses at the same price because the FRS assumes a profit in the setting of the rates.  You would be better recharging these as disbursements or just getting the customer to pay.

However, if the expenses were say, zero-rated rail fares - yes, great idea.

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Replying to jcace:
RLI
By lionofludesch
02nd Apr 2014 18:13

Indeed

fawltybasil2575 wrote:

I am just a little concerned at your comment that :-

"You would be better recharging these as disbursements".

This comment appears to imply that you have a choice, when issuing a sales invoice, as to whether to show it as a disbursement.  This could mislead the OP, as there is no element of choice.  The £1000 plus VAT (in the OP's question) must not be treated as a disbursement if it represents goods and/or services which the OP has contracted to buy (and thus pay for) himself.

On the same logic, let us consider that the OP buys "goods and/or services", which he intends to include on a sales invoice (NOT as a disbursement).  He then asks the customer to pay for those "goods and/or services" (perhaps in the belief that this will avoid the "VAT loss" to which I referred in my first post) - this would represent false accounting as it would result in an understatement of the VAT payable under FRS.

Regards,

Basil

Point taken.

It does indeed depend on what these goods and services might be.

Perhaps wrongly, I drew the conclusion that the cost was being passed on, without profit margin, to the ultimate customer and that they were thus contracted for as a convenience rather than a genuine purchase and resale.   Perhaps I have assumed far too much.

 

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Stepurhan
By stepurhan
01st Apr 2014 08:54

Buying direct

I agree with fawltybasil2575 about the disbursement treatment. If the materials are bought in the trader's name, then disbursement treatment is not appropriate. These are goods purchased by the trader to allow them to provide the services contracted. They are not expenses of the client that the trader is paying on their behalf (which is the requirement for disbursement treatment).

If you take lionofludesch's second suggestion, to get the customer to buy direct, they are not passing through the trader's hands at all, and hence any VAT problems disappear. This is assuming that you would not normally have a mark-up on the goods in question of course.

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By nmh
02nd Apr 2014 16:57

Thanks for all your help with this folks. It's a huge help and much appreciated.

 

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