VAT Payable on Expenses for Non-VAT Registered Ltd Co

VAT Payable on Expenses for Non-VAT Registered...

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I'm a contractor with a Limited Company.  My expenses are paid by the client on a self-billing basis.  The company that contract me through to my client haven't paid me the VAT element of the expenses and have given me this explanation :

In the example for the VAT registered contractor, the total VAT in the chain is £380.  Client pays the company £380 of VAT of which the company pays the HMRC £40 and pays the contractor £340.  The contractor pays the HMRC £300 and the hotel £20 leaving the hotel t pay HMRC the remaining £20.

In the case of a non-VAT Registered contractor, the total VAT in the chain remains as before at £380 because the invoice from Company to Client is the same.  However because there is no VAT on the invoice from the contractor, company has to pay the whole of the £380 to HMRC.  Because the non-VAT registered contactor effectively breaks the VAT chain, there is no VAT between the hotel and company for the £20 VAT to be passed on.

The overall effect is that is in this example (and obviously it will change depending on the numbers and proportion of expenses versus labour), the VAT registered contractor has made £1500 profit but has had to fill in VAT returns and pay HMRC and the non-VAT registered contractors has paid the hotel £20 VAT that they cannot claim back

I've got a spreadsheet I can email too if that helps.

 

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By geroge
10th Mar 2014 10:17

If

your client pays the hotel directly, then if that is their cost to bear, why should it affect the self-billed invoice?

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