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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Managing Director

Jonathan trained as a chartered accountant with Price Waterhouse (now PWC) in Liverpool before becoming a small business services manager for Grant Thornton in Warrington. He also spent three years as the financial controller for Brookside and Hollyoaks (not that he ever mentions it!).

Jonathan is recognised as a specialist in the entertainment industry and is often called upon to provide training courses and seminars for media professionals. He's also a bit of a technology geek and has been recognised with the accountancy industry as one of the most progressive accountants in the UK.
Outside of work Jonathan is very proud to be the Treasurer of the Tim Parry Johnathan Ball Foundation for Peace and to be on the Council of the Liverpool Institute of Performing Arts (LIPA)

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