A Client of mine has posed with an interesting VAT question, which I have not come across yet. Your advice would be most appreciated:
My Client has been told by one of his Clients that they would pay for some advice in respect to an employment matter relating to their contract, via my Client incurring the cost initially and then rebilling on to his Client.
My Client has received his invoice, which he has duly paid. This invoice was £1,200 gross (inc VAT). My Client however makes mostly VAT exempt sales and can only claim back 1% of any VAT in his quarterly return.
Should my Client rebill just has he was billed? Ie:- £1,200 inc VAT. This would mean he would be worse off as he has paid full input VAT and can only claim back 1% of it.
or
Can they rebill at the true cost to them of £1,198 (£1,200 minus 1% of VAT they can reclaim) and applying no VAT to bill whatsoever?
Your advice would be greatly appreciated in this matter
Replies (5)
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Assuming that the supply should not be treated as a disbursement, and that the supply by your client is standard-rated, he should charge VAT at 20%. Since the VAT incurred by your client relates wholly to the VATable supply, the input VAT should be recoverable in full. Perhaps you need a refresher course on the principles of partial exemption?
There're three kinds of input tax.
1. Related to Taxable Supplies
2. Related to Exempt Supplies
3. Residual
The rules for reclaiming these three kinds of tax are all different. I would guess the tax in your case falls into type 1.
Maybe you should run your eye over past returns though. Just to review whether they were correctly calculated.
Just a thought - your client's not on the FRS as a Low Cost Trader, is he ? 1% is precisely the amount of input tax he could recover if he was.
Just a thought - your client's not on the FRS as a Low Cost Trader, is he ?
I sincerely hope not - "My Client however makes mostly VAT exempt sales"
lionofludesch wrote: Just a thought - your client's not on the FRS as a Low Cost Trader, is he ?
I sincerely hope not - "My Client however makes mostly VAT exempt sales"
Hey - you never know. Have you not learnt that yet ?