I have a new client who operates through a Limited Company charging her clients fees for her consultancy services and some of her expenses (mainly hotel bills) are re-imbursed to her by her main client. Lets say we are looking at hotel bills over the 3 years since she set the company up of £9,000 (being £7,500 + VAT = £9,000).
She has invoiced these expenses on to her client at £7,500 + VAT (because that is what her client advised her she should do).
Now my client has been advised by her client that this is in fact the wrong way to do it and that she should actually be invoicing the recharged expenses for the gross expense of £9,000 + VAT.
My understanding that this is indeed the correct way to do expense recharges. Take the gross expense and charge VAT on this.
My client's client have said the easiest option is to ignore the past but start doing it correctly from now.
I suppose technically my client should correct all the previous invoices to include the correct amount of VAT or perhaps easier to just raise a "VAT only" invoice for £300 (9,000 less 7,500 x 20%).
However as the amounts involved are small and as her client will reclaim the extra £300 VAT back from HMRC anyway in this case is it really worth doing it?
Whats the worst that could happen in this situation?