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Do you charge VAT on re-billed salary expenses?

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Hi all,

We are soon to employ a person in the company I manage the accounts for on a contractual basis. This employment is on behalf of another Company we work closely with. Every month I will recharge the following expenses to this company at cost;

Salary
Income Tax
Employer Mandatory Pension Contribution
Disbursements (travel and accomodation)

My question is, would VAT be applicable to the salary portion of the rebill and not to the other sections?

The expenses incurred by this employee is solely for the other company which is why I am recharging as disbursements and not 'recharges'.

Has anyone else dealt with a similar situation previously?

Thanks,
Sam

Replies (13)

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By WhichTyler
02nd Dec 2019 15:40

Woolly thinking alert...

If you are the employer ('...we are soon to employ...') then I assume the contract with the employee is with you. If the employee is then seconded to another company, then you are supplying the other company with staff, which is a vatable supply, even if you charge a rate that only covers your costs. PS (you will need a contract between you and the other company too)

It might be easier for the other company to contract the employee, and you do payroll etc. Then it would be a disbursement. But watch out for data/privacy requirements.

The other big problem with this sort of arrangement is that it give you all the liabilities/responsibilities of the employer but no management control. So if the randy sales director at the other co gropes the employee, and the employee sues you what happens? (Alternatively the employye commits fraud at the other company, and the other co sues you? I could go on...)

So I suggest you rethink and simplify this for the good of all...

Thanks (1)
Replying to WhichTyler:
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By newaccountantsf
02nd Dec 2019 15:52

Hello WhichTyler,

Thank you for your response. The last paragraph certainly provides food for thought.

Kindest,
S

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Replying to newaccountantsf:
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By WhichTyler
02nd Dec 2019 15:56

You can cover most of it in your contract with the other company, but you would still have to pay for legal advice, check they have (and continue to have) liability insurance in place, health & safety procedures etc, be clear about who they report to and how (under-) performance is managed. So if this person is working for them 100% of the time, its not worth the bother...

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RLI
By lionofludesch
02nd Dec 2019 15:43

Travel and accommodation ?

Now there's a can of worms.

Unless the customer company is doing the sleeping in the hotel rooms, this is not a disbursement. It's part of your company's charge for the employee's services.

The supply for VAT purposes is made to the person who stays at the hotel.

Assuming you can recover the input tax and the bill is £120 inc VAT, you should be charging the customer £100 + £20 VAT for this.

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Replying to lionofludesch:
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By newaccountantsf
02nd Dec 2019 15:55

Hi Lionofludesch,

Thank you for your reply.

Ah of course, at first thought I assumed as the employee is incurring travel expenses on behalf of the other company it may be counted as a disbursement but technically speaking, you are absolutely right. It would be classed as our company's charge.

Thank you.
S

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By JDBENJAMIN
02nd Dec 2019 15:53

You should phrase this question so it is not ambiguous. Who, if anyone, is employing who? Who, if anyone, is making a contract with who? Be precise.

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Hallerud at Easter
By DJKL
02nd Dec 2019 16:14

I presume (and your OP suggests it likely does not apply) there is no question this is within a Paymaster service form of recharge?

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By lukecurtis
05th Dec 2019 11:01

Always charge vat for this.

Thanks (0)
All Paul Accountants in Leeds
By paulinleeds
05th Dec 2019 12:56

I have a great article on my website that I wrote on 'VAT: Recharges or disbursements passed to customers' dated 31 August 2018.

Read it at https://www.all-paul.co.uk/single-post/2018/08/31/VAT-Recharges-or-disbu...

Better still read the article under the Value Added Tax 'FAQ' section titled 'VAT treatment of recharged expenses' at https://www.all-paul.co.uk/faq.

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Replying to paulinleeds:
RLI
By lionofludesch
05th Dec 2019 15:35

paulinleeds wrote:

I have a great article on my website that I wrote....

Full marks for modesty !!

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By [email protected]
05th Dec 2019 13:22

This is quite a common scenario within groups of companies. One Co. runs the (say) accounting function for all of the companies and recharges the costs.

VAT is chargeable on the lot, including employee expenses incurred.
Genuine disbursements can be passed through, although it is often better for the recipient Co to pay directly for those things.

Also best to check (with a lawyer) whether the nature of the supply falls under Agency rules. It helps if the contract / mou is for the service rather than the person.

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Replying to [email protected]:
RLI
By lionofludesch
05th Dec 2019 15:37

peter-AT-pschapman.plus.com wrote:

This is quite a common scenario within groups of companies.

What if they're in a group registration for VAT ?

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By djbrown
06th Dec 2019 13:33

A paymaster agreement would appear to be the optimum solution. From HMRC:

where each of a number of associated companies employs its own staff, but one company (the paymaster) pays salaries and other expenses on behalf of the others who then pay their share of the costs to the paymaster

Recovery of monies paid out by the paymaster in either of these situations is not subject to VAT as it’s a disbursement.

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