VAT on General Expenses recharged to a client

Hi all, We have a supplier who is invoicing us for Consultancy work plus General expenses. The supplier is VAT registered and is charging us VAT on both Consultancy and General Expenses. Some of the expenses are Vatable which the supplier is claiming the VAT in their books, but is then charging us the Gross plus VAT. In this instance should the supplier not be charging us the Net as this is the cost to them as they have reclaimed VAT from HMRC on their VAT return. Otherwise by charging VAT on the Gross is the supplier not making a profit on the expense? Thanks

Hi CraigF
.We can't dictate to a company what value they charge as a supply.
We can only dictate that the VAT is charged on their supply but the value of this supply is their own decision.
Thank you.
 

It is unsporting when recharging a cost, to charge the gross plus VAT. As CraigF has stated, if the supplier is able to reclaim the VAT on the costs/general expenses they buy in, when recharging onto the customer the supplier should simply recharge the net amounts of those expenses plus VAT, that way the customer is paying the same amount as if the customer had paid for these expenses themselves. However, there is nothing in the legislation that compels a supplier to recharge net plus VAT (although it is good practice), the supplier can add a mark-up if they want to, depends on the contract T&Cs, but in my experience, a phone call to the supplier to explain that by charging VAT on top of the gross, means the supplier benefits/makes an unintentional mark-up/profit and that you as the customer lose out, usually the supplier will reissue the invoice as there is no loss to them, especially if you have an ongoing relationship with them.

Thanks Jason - that is exactly my thoughts. As you say, by charging VAT on top of the gross they are indeed making a profit at the suppliers expense. I have since spoken to the supplier and they have advised that there me that their accountant has advised them the way they are doing this is correct and very much standard. Their accountant is saying, 'the expenses incurred while delivering my service do not qualify as disbursements but are deemed recharges and therefore must incur VAT on the full amounts'. I accept they have to charge VAT but in my eyes it should be on net as they will claim the VAT back when they submit VAT return. Is there anyone from HMRC who can advise here? Thanks very much.

Hi. We can't dictate to a company what value they charge as a supply. We can only dictate that the VAT is charged on their supply but the value of this supply is their own decision. Thank you .

There is nothing in the law on this, most suppliers have brains and can figure this out but you can't legislate for stupidity. If the supplier has asked their accountant then the reply about disbursements is irrelevant, accountant hasn't understood the question asked or supplier has not explained the question properly, this was never a question of disbursements (it is not a disbursement). This is just a simple situation whereby supplier buys goods for £100 + £20 VAT, supplier reclaims the £20 VAT, supplier then recharges the goods on for £100 + £20 VAT, no mark-up or profit earned on this transaction but VAT fully charged, supplier is complying with the VAT rules, customer acquires the goods without mar-up from supplier, everyone wins. The supplier is of course allowed to add a mark-up for their troubles and it might be that the supplier is doing exactly that, adding a 20% mark-up, if so, maybe buy the goods directly and not via the supplier. Only solution, if common sense is not prevailing, is to not use them again and explain to them they are marking up all their prices that makes them too expensive to deal with.

Hi, I'm on a flat rate VAT scheme I have to invoice my client for fuel and include my receipts. In the past I've invoiced VAT at 20% on top of the gross figure as advised by my accountant, otherwise my business will loose money if I only charged VAT on the nett cost incurred. Is this ok to do or should fuel receipts be claimed back in another way?

Hi. If you are charging on expenses then it is acceptable to charge the VAT on the gross figure . If you are on the Flat Rate Scheme then this would benefit you in doing so  . Thank you .