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VAT on recharged items from non-reg supplier

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We have purchased a replacement key which is a VAT-able supply, which needs to be recharged to our client. The supplier is not VAT registered but am I correct thinking that we still have to charge VAT on the sale? If so, would it be the key cost + VAT, or including VAT? Thank you!

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By Tax Dragon
20th Sep 2021 09:28

Ask yourself Lion's favourite question: who is supplying what to whom?

Recharged. A word so capable of being misused.

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By Justin Bryant
20th Sep 2021 10:15

An easier question to answer would be that if there were no VAT on the key (or whatever is being onwardly supplied) this would be an easy way to avoid VAT if a VATable supplier could simply subcontract to non-VAT registered suppliers re their onward supplies.

Also, there are some exceptions e.g. re solicitor counsel fee disbursements and the exceptions proving the rule may be an equally easy way to remember this.

https://www.lawsociety.org.uk/topics/tax/review-of-vat-concessionary-tre...

TD's question doesn't really help lay people understand this, at least in my view.

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Replying to Justin Bryant:
By Duggimon
20th Sep 2021 10:11

What on earth are you on about? I can't make head nor tail of what you're getting at here, nor how it relates to the question.

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Replying to Duggimon:
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By Justin Bryant
20th Sep 2021 10:16

Have a read of the above link re counsel fees exception.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
20th Sep 2021 11:56

Justin Bryant wrote:
TD's question doesn't really help lay people understand this, at least in my view.

Questions rarely help people, lay or otherwise, understand things. I tend to find that answers are much more useful in that respect.
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Replying to Wilson Philips:
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By Justin Bryant
20th Sep 2021 12:39

Well, don't tell me that. Tell 99% of Awebbers.

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Replying to Wilson Philips:
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By Tax Dragon
20th Sep 2021 12:58

To be fair,

Justin Bryant wrote:

An easier question to answer would be that if there were no VAT on the key (or whatever is being onwardly supplied) this would be an easy way to avoid VAT if a VATable supplier could simply subcontract to non-VAT registered suppliers re their onward supplies.

sounds more like an answer than a question to me.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
20th Sep 2021 13:05

:-)

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Replying to Wilson Philips:
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By Tax Dragon
20th Sep 2021 13:06

Wilson Philips wrote:

Questions rarely help people, lay or otherwise, understand things. I tend to find that answers are much more useful in that respect.

FWIW, I disagree fundamentally. It's questions drive progress. Personal and scientific/technological/panhuman.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
20th Sep 2021 13:37

Absolutely, but you’ve missed my point. It is often the case (this thread being a prime example) that a counter-question is required before an informed answer may be given. But it is usually that answer, rather than the question itself (admittedly without which there is unlikely to be the answer), that is the more useful part.

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By Duggimon
20th Sep 2021 10:15

Recharges are VATable if you are VAT registered and the supply is VATable. Disbursements are not, or rather the VAT is between the original supplier and your customer and has nothing to do with you.

The key here (hehe) is in determining whether it is a recharge or a disbursement. A good test might be: if the client got to the door and stuck the key in and it failed to turn, to whom would they return the key? If to you, it was a recharge, if to the key cutter then a disbursement.

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Replying to Duggimon:
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By Justin Bryant
20th Sep 2021 10:36

Why on earth is that (materially) inconsistent with what I said? Your last sentence "test" is not necessarily always the case, legally speaking at least e.g. local authority land search results are treated as supplied by conveyancing solicitor for VAT purposes (i.e. not a disbursement), but a lay person would consider their redress is with the local authority if they are dud etc.
https://www.gov.uk/government/publications/revenue-and-customs-brief-6-2...

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Replying to Justin Bryant:
By Duggimon
20th Sep 2021 12:49

I have no idea if what I said was inconsistent with what you said, I couldn't understand your post. There was a bit about VAT fraud and a bit about solicitor fees. The link wasn't in it when I replied to it, you added that afterwards, and while the same rules might broadly apply, I'm not sure solicitor fees and disbursements are helpful in clarifying things.

I just used an illustrative example bringing in the actual circumstance from the OP which also, helpfully, gives the correct answer to the OP. Your post helps if instead of keys they decide to start supplying searches of the land register, which have different rules completely specific to only searches of the land register.

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By SXGuy
20th Sep 2021 10:34

Well, if I were to go shopping today, would I be arguing that I want the vat removed because I'm not vat registered?

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Replying to SXGuy:
RLI
By lionofludesch
20th Sep 2021 19:46

SXGuy wrote:

Well, if I were to go shopping today, would I be arguing that I want the vat removed because I'm not vat registered?

Give it a go. You never know.

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Replying to SXGuy:
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By Bobbo
21st Sep 2021 08:28

SXGuy wrote:

Well, if I were to go shopping today, would I be arguing that I want the vat removed because I'm not vat registered?

No VAT if you pay in cash

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Replying to Bobbo:
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By Tax Dragon
21st Sep 2021 09:09

Comments like that...

I've changed my mind. I'm sorry, @ALISK.

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Jason Croke
By Jason Croke
20th Sep 2021 11:20

OP purchased goods where VAT was not charged. OP is onward supplying/recharging those costs to someone else. OP is VAT registered and therefore the onward supply/recharge is VATable.

If the cost of the key was say £10.00 then OP would charge £10 + £2VAT = £12 to the customer. if OP took the £10 as VAT inclusive then that would mean the recharge invoice would be £8.34 net + £1.66 VAT = and OP would be out of pocket so don't go VAT inclusive, add VAT.

Next time, if the contract and/or arrangement allows it, get the customer to cut their own key as that way they save the VAT...but appreciate OP may be a landlord or letting agent and responsible for dealing with such things.

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By Paul Crowley
20th Sep 2021 11:56

Best to give an idea of the relationship
If you are a letting agent the payment should be on the client account and you are not billing as such
The expense is not your expense

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By Daynajay
20th Sep 2021 12:19

Thank you all for your responses. I should maybe explain that our clients are vulnerable adults who live in our accommodation so we purchase these things on their behalf. The key was invoiced to the client, however their money is managed via a government service who pays their invoices on their behalf, it is them who are querying the VAT on the invoices.

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Replying to Daynajay:
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By DKB-Sheffield
20th Sep 2021 13:16

And herein lies the true nature of the question...

=Daynajay wrote:
The key was invoiced to the client, however their money is managed via a government service who pays their invoices on their behalf, it is them who are querying the VAT on the invoices.

This is not the first time HMG, LA, or Quangos believe they don't have to pay VAT. I've come across queries on restaurant food, hotel bills, and even stationery. Strangely, HMG (HMRC dept.) don't hold the same opinion!

In this case, the fact that HMG (etc.) have that much spare time to raise a query over a £2 VAT charge is unbelievable. No wonder Health & Social Care is in a mess (which I assume the service set out above would come under).

As has been set out previously, this is, to my mind a supply of goods and, if those goods are purchased by you and recharged (and as you are VAT registered), VAT should be charged. I don't personally take the view that this is a disbursement on the assumption that your client (HMG etc.) did not contract (or even have contact) with the key cutter. I also do not take the view that these 'goods' are exempt from VAT in line with the supply of residential accommodation and they do not appear to be of a 'composite supply of a service' (the supply is in addition to the supply of accommodation).

It may be that many of the suppliers your client deals with are exempt, rather VAT registered so, that is where the confusion has come about. However, had the keys been purchased from a VAT registered key cutter, would your client also be insisting you go back to the key cutter and have them reverse the VAT?!

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Replying to DKB-Sheffield:
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By Daynajay
20th Sep 2021 15:36

Hello, that makes a lot of sense to me! I feel like this is where I was heading but wasn’t 100% sure. Thank you for your response :-)

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By Leywood
20th Sep 2021 13:36

Ask them to quote the legislation where it states they don’t need to pay it. Pushes the time wasting back to them! Works a treat.

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RLI
By lionofludesch
20th Sep 2021 19:51

The answer is, there could be no VAT charge if you can squeeze it in to the disbursement rules.

As Drags knew I'd say, who is supplying what to whom?

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