recharging costs and VAT

[monian]

we have recently entered into agreement with Australian company to sell their education product to businesses in UK. They keep the other sector (ie: home users in UK). We will be paying them royalty on our sales. Because the Aus comany has not got any establishment in UK they asked if we can employ a person who will be coordinating their marketing for home market, we also pay for all their marketing invoices on their behalf. We will be recharging all the expenses to them, including the salary of the empolyee and add 5% service charge on top. From next month the employee will be based in our office and we will want to recover part of the cost for that. When invoicing them can we treat the costs as disbursments or is it treated as supply of services (because the employee in on our payorol), how do we account for VaT for the marketing purchases and recharge invoices? Please advise

[section 44]

can we treat the costs as disbursments

They don't sound like disbursments

[monian]

how do I treat it then? is it a sales of marketing services? am i allowed to reclaim the marketing cost, the customer is in Aus but the supply is used in UK... do I charge VAT then

[Generix]

Sounds to me like you are providing sales and marketing services which is calculated by reference to costs + 5%.

This service to an Oz customer would be outside the scope of VAT with credit, therefore the input VAT would be recoverable.

Net nil VAT cost for all.