Travel expenses recharged from supplier

Hi We have a UK based contractor who is VAT registered and recently completed an audit on our behalf for a customer of ours based in Dublin, Ireland. The contractor's invoice includes a charge for his time plus associated travel expenses as part of the audit. Some of these expenses were incurred in the UK and some in Ireland. The contractor has applied 20% on all the expenses incurred which means some of the costs are more than what was actually paid out, As an example car hire in Ireland after conversion from Euros totalled £196.91 including 13.5% Irish VAT of £23.42 but the contractor's invoice is showing the full cost of the expense, £196.91, plus 20% VAT, making £236.29. I know for VAT registered contractors a UK expense should be recharged to us net of VAT, where applicable, and 20% VAT applied but what about expenses incurred outside the UK? How should these have been charged to us? Does place of supply kick in or the reverse charge? Thanks Sarah Perrett

If the contractor cannot reclaim Irish VAT then the contractor has out of pocket expenses of £196.91 (the gross amount) so they would be right to recharge this amount plus 20% UK VAT. The contractor can only reclaim Irish VAT if i) they have an Irish VAT registration ...or...ii) they submit an EU VAT refund claim to the Irish tax office but there are minimum claims limits and timeframes for this. It's not reverse charge. You are a UK business and you engaged with another UK business, so invoices between two UK businesses would be subject to UK VAT. The purchase made in Ireland by the contractor appear properly charged with Irish VAT and would not fall under reverse charge either (place of supply of car hire is where it is used, contractor hires a car in Ireland, Irish VAT applies, hire car is refuelled, supply of goods takes place in Ireland, goods do not get exported out of Ireland, Irish VAT applies), contractor cannot reclaim Irish VAT so passes that whole cost onto you, contractor also required to charge UK VAT on their supply to you. Costs are also not a disbursement. Assuming you can reclaim the UK VAT charged by the contractor, you are no worse off than if you had gone to Ireland yourself and hired a car and you would have incurred the same Irish VAT costs. With regard the UK incurred expenses, where a contractor incurs a cost of say a UK hotel and contractor can reclaim this VAT, it is best practice to recharge the hotel cost as net plus VAT onto the customer (rather than taking the VAT inclusive gross price and adding VAT on top) although there is nothing in VAT legislation to stop a contractor adding VAT on top of a gross figure, that is down to what the T&C's of the contract/engagement state and if silent on expenses then the contractor could add VAT to gross incurred costs, in other words, the contractor can charge whatever they like as long as it is plus VAT. If the contractor is someone you will be using in the future, have a word, explain that its best if they reclaim the VAT on hotel and therefore they are only out of pocket by the net amount and to recharge the net amount plus VAT, but at end of day is down to them. But here, the contractor presumably cannot reclaim Irish VAT so the cost to them is the gross/Irish VAT inclusive price and as they are UK based they charge UK VAT on top of that.

Hi,

If the contractor is based in the UK then they will need to charge VAT on all the expenses and it will not be subject to the reverse charge as the contractor is not overseas.

HMRC cannot dictate the value on which VAT is to be charged, HMRC can only state that the VAT would need to be charged so the value is effectively the decision of the contractor.

Thank you.