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VAT, US & disbursements and recharges

VAT Treatment

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Hi there

Just looking for some confirmation.

A new client will be acting as an sales person, introducing a US product into the UK. The US Co does not have a UK presence, so I understand my clients sales will outside the scope of UK Vat.

Where my client incurs disbursements of their behalf is the vat treatment the same?

Where my client incurs disbursements he will obviously be charged VAT, which he cannot recover, and so is charging it onto the US Co at the gross amount.  In this scenario can he have the supplier invoice the US Co, so it's outside the scope, but he still pays for the item and passes the cost on?

This is the first time I've had disbursements to a non UK Co. 
 

Thanks for your help.

 

 

Replies (12)

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RLI
By lionofludesch
03rd Dec 2021 08:43

Who is supplying what to whom?

What are these disbursements? Are they supplies to the agent or the US customer?

Just because the US customer pays for the whatever it is, doesn't mean that the supply is to him.

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Replying to lionofludesch:
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By Paul Crowley
03rd Dec 2021 09:34

In addition
Where is the thing or service being used being used

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Replying to Paul Crowley:
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By BMary83
03rd Dec 2021 09:43

So my client would be purchasing equipment, lap top, marketing stands to use in drumming up business but passing on the cost to the US co. So this would be a recharge then? Rather than a disbursement?

And if it's a recharge then usually it's vatable but because it's to a US co it's outside the scope?

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Replying to BMary83:
RLI
By lionofludesch
03rd Dec 2021 09:50

BMary83 wrote:

So my client would be purchasing equipment, lap top, marketing stands to use in drumming up business but passing on the cost to the US co. So this would be a recharge then? Rather than a disbursement?

And if it's a recharge then usually it's vatable but because it's to a US co it's outside the scope?

Let's be precise.

If you're saying the client is purchasing this stuff, the supply is to him. It's not a disbursement. So who owns this laptop and these marketing stands ?

And what proof of export do you have ? I'm guessing none.

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Replying to lionofludesch:
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By BMary83
03rd Dec 2021 10:02

I get you. I will have to clarify the ownership point but you're right, no export.

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Replying to lionofludesch:
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By BMary83
06th Jan 2022 11:15

Sorry to come back to this but can I ask a follow up question re: passing on the cost of services to the US customer?

So UK co uses the service, pays the bill and claims back the VAT, then recharges this onto the US customer.

The service was received and used in the UK, so my head says it's VATable.

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Jason Croke
By Jason Croke
03rd Dec 2021 09:36

Probably need some more information but I'd remove the idea of disbursements from your mind. Disbursements are quite complex things and everyone tries to argue its a disbursement so as to avoid VAT and almost every time you think its a disbursement, it isn't.

Your new client, I presume they are either a sole trader or a limited company.

Presumably your client is a sales person, drumming up business for the US entity? If that is the case, then it would seem your client receives a commission for each sale they make and in effect, your client would raise an invoice to the USA for their commission.

Place of supply of services is where the customer is, so your client has a USA customer whom they invoice and so the invoice would be outside the scope of VAT. Your client is not obliged to register for VAT if their only customer is the USA entity as outside scope of VAT turnover does not count towards the £85k threshold.

Your client - having established it is either a sole trader or Limited company - is buying things that it needs in order to make a sale and earn commission.

So what are these things your client is buying which you believe to be disbursements?

You stated in your OP that "can he have the supplier invoice the US Co, so it's outside the scope, but he still pays for the item and passes the cost on?"

Just re-read that, you are saying you want your client to pay for something but have the invoice go to USA....so in book-keeping terms how will your client show money leaving his bank account to a supplier with no corresponding purchase invoice? If the USA customer has been invoiced directly by the third party supplier, why then would your client invoice the USA customer again, for the same supplies? You are just looking at in in money terms, you need to look at this in contract/law terms.

If your client is recharging his costs on at gross, your client is not out of pocket at all. The USA customer is incurring UK VAT which they cannot reclaim but that is their problem and would be the same problem if the USA customer was instead a UK customer....is the problem that your client is getting close to the VAT registration threshold?

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Replying to Jason Croke:
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By BMary83
03rd Dec 2021 09:56

Thank you for detailed reply.

Re: your comment: Presumably your client is a sales person, drumming up business for the US entity? If that is the case, then it would seem your client receives a commission for each sale they make and in effect, your client would raise an invoice to the USA for their commission.

This is exactly the case.

Can I pick your brains a bit further?

1. So where my client buys equipment this will be a recharge, not a disbursement?
2. When incurring the cost, can my client claim back the VAT and recharge the net amount?
3. This recharge, whether they can claim back the VAT or not is still outside the scope of VAT?

Yes, they anticipate that they will be hovering close to the VAT threshold due to the income from this customer but will have other smaller UK customers too.

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Replying to BMary83:
Jason Croke
By Jason Croke
03rd Dec 2021 11:47

As others have posted, your client is buying the laptop, he is using the laptop in his business to drum up sales. The laptop (and everything else he buys) are not disbursements, they are just the tools he needs to do his job.

I guess without the stands and laptop his sales would be Nil. So the things are certainly for HIS benefit, not the USA company. These will be his company expenditure items.

Your client isn't VAT registered*, so they cannot reclaim any VAT for the laptop, etc. As your client recharges his expenditure onto the USA customer as a gross amount, your client is not out of pocket.

If your client was VAT registered, then yes, he would reclaim the VAT on the things bought and he would recharge that to USA, but as the goods aren't leaving the UK he would still have to charge VAT.

The recharge back to the USA for his commission would be outside the scope of VAT but that is because commission is a "service", whereas with goods, they can only be zero rated if they leave the UK.

So if your client buys a laptop from PC World and recharges that as a laptop back to USA, he will still have to charge UK VAT to the USA customer as he has not exported it.

*it is a little worrying that you think a non-VAT registered business can reclaim VAT.

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Replying to Jason Croke:
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By BMary83
03rd Dec 2021 13:45

Re your comment: it is a little worrying that you think a non-VAT registered business can reclaim VAT.

I don’t think that, I am preparing myself for the questions that will be asked as it’s not something I deal with on a daily basis. Thank you for your helpful reply nonetheless.

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Replying to BMary83:
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By Leywood
03rd Dec 2021 13:58

I dont think you would need to prepare for such a question.

There is no shame in admittng to a client that you cannot answer his questions and need to buy in some expertise.

Indeed your PII cover will protect you better by doing just that.

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By Matrix
03rd Dec 2021 14:01

The amount the client invoices is a commercial issue, so would depend on the terms of the contract. Usually a business would bear its own costs. Otherwise it sounds more like an employee/employer relationship.

It may be beneficial for your client to register for VAT and recover VAT on bills addressed to the client etc.

I just billed a non resident client and included some disbursements as VAT inclusive since we can’t get the VAT back as the invoice isn’t addressed to us.

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