VAT on recharge

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Some background to start:

We employ 4 employees who work for anorther company within our group. We are not part of a VAT group and each has our own VAT number.

We pay their salaries, expenses and Visa cards. They submit their expenses to us and we analyse and recliam the VAT. We then recharge the Net amount to the other company. 

My question is do we charge 20% VAT on our invoice to the other company? 

 

Replies (10)

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chips_at_mattersey
By Les Howard
30th Jul 2019 17:04

Yes. Staff expenses are an element in the cost of providing the service.

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Replying to leshoward:
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By christinesmith
30th Jul 2019 17:14

Hi Les

Can you explian why this is as the company has come back saying they don't agree with our invoice and they believe the VAT amount should be the VAT amount we reclaimed and not the 20% on the net amount we've charged.

Thank you

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Replying to christinesmith:
RLI
By lionofludesch
30th Jul 2019 19:03

christinesmith wrote:

Hi Les

Can you explian why this is as the company has come back saying they don't agree with our invoice and they believe the VAT amount should be the VAT amount we reclaimed and not the 20% on the net amount we've charged.

Thank you

Hi Christine

As Les says, the supply of staff is itself standard rated. So you are correctly charging VAT on the wages recharged.

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By paul.benny
31st Jul 2019 10:47

The basic VAT rule is that any supply of goods or services is subject to VAT. Unless it's specifically excluded by being out of scope or exempt.

Perhaps your other company could explain to you why they think your supply of staff is not subject to VAT.

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Replying to paul.benny:
Psycho
By Wilson Philips
31st Jul 2019 11:03

I would guess it's the usual misunderstanding - recipient thinks that because wages are outside the scope of VAT any re-charges should be treated likewise. If they want to avoid VAT on the charges they need to set up a paymaster arrangement. (Or perhaps there already is one.)

https://www.gov.uk/guidance/companies-that-supply-staff-and-staff-bureau...

Paragraph 3.3

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Replying to paul.benny:
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By christinesmith
31st Jul 2019 13:20

Hi Paul

Does this include the expenses they submit? So again we claim the VAT if the appropriate receipts are given and then recharge the Net to them adding the 20% vat on to our invoice.

Thank you

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Replying to christinesmith:
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By paul.benny
31st Jul 2019 16:42

Yes - exactly right.
You should be charging VAT on the entire amount you invoice to the other company.

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Replying to paul.benny:
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By christinesmith
31st Jul 2019 16:56

Thats what I thought. They are just arguing that we should only charge the VAT that we've reclaimed and if we haven't received a receipt and have been unable to recliam the VAT then we shouldn't charge Vat on our invoice as the amount we recharge includes VAT.

They are just not getting it.

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chips_at_mattersey
By Les Howard
31st Jul 2019 17:56

If the 'other' company is partially exempt, so that it is unable to recover the VAT in full, then you might consider other options, such as joint employment contracts, or Group VAT registration.

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By Deb Shaw
08th Aug 2019 10:01

I am in a similar situation, where we employ staff & pay their expenses and then recharge another company in the group, however that company is in Austria. Am I correct to not charge VAT?

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