May 3rd, 2017

VAT on recharges – what’s right?

The rules covering VAT on recharges are often misunderstood.  Here’s an example.

Jackie Limited provides cleaning services and her staff travel to the clients premises in their own vehicles and make a claim for mileage from Jackie Limited.

The customer is charged both for the cleaning and for the mileage costs, at the same rate per mile as the worker claims from Jackie Limited.  A customer has said that the mileage is a disbursement and should not be charged with VAT on it, although the actual cleaning services are standard- rated.   Is this correct?

The answer?

The mileage costs don’t qualify as a disbursement for VAT purposes. Instead they are a cost component, incurred by the client in making the supply of the cleaning services and so must be included in the value of those supplies when VAT is calculated and charged at the same rate as the main supply.

For a recharge to qualify as a disbursement and be outside the scope of VAT, the following conditions (reproduced in s.25 VAT Notice 700) should be met:

All these conditions must be satisfied before you can treat a payment as a disbursement for VAT purposes.

If you need any further help with VAT the don’t hesitate to get in touch.

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John manages a wide portfolio of owner managed businesses and oversees the smooth operation of the firm’s payroll department.

After obtaining his degree in mathematics from the University of Liverpool, John joined Jonathan Ford & Co in 2004 and qualified as a chartered accountant four years later. John likes to keep abreast of developments in tax and accounting and is responsible for the mentoring of junior staff.

Outside of work, John enjoys keeping fit and is a Liverpool FC season ticket holder.

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