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VAT disbursements on client invitation postage

Ajay
Posts: 5
Joined: Wed Apr 19, 2017 6:41 pm

VAT disbursements on client invitation postage

Postby Ajay » Wed Apr 19, 2017 6:50 pm

I have a wedding planning business where I charge my client a set fee for my services.

Previously clients would contract and pay suppliers directly but as a planning service it is easier for us to deal with all payments etc.

With regards to posting their invitations, we would have these sent out. We do not make any money on top of the postage charges and we are not posting the items to the client so I would presume this can be treated as a disbursement. My accountant believes we would need to charge VAT on this and has refered me to this website: https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers and section 2.2 of this website: https://www.gov.uk/government/publications/vat-notice-70024-postage-and-delivery-charges/vat-notice-70024-postage-delivery-charges-and-direct-marketing.

These examples all refer to if I have something to send to my client, however I would be sending invitations out to my clients guests on behalf of my client so I don't understand why it would be treated any differently to any other disbursement.

With regards to other disbursements, it would be easiest for us to contract with the supplier ourselves and pass on the costs to the client for the services. If I was passing on costs as a disbursement would the client have to contract directly with the supplier and the invoices go directly to the client? I want to make it as easy for a client as possible without them having to pay any additional amounts if possible. If anyone has any other ways that this can be done please do let me know.

Thanks so much,
Ajay

les35
Posts: 398
Joined: Wed Aug 06, 2008 3:09 pm

Re: VAT disbursements on client invitation postage

Postby les35 » Wed Apr 19, 2017 7:27 pm

If you provide a package of services, like a wedding planning business, it is very difficult to argue that any elements are procured as agent for the client. The whole intention of such a service is that your unique contact base is available to the happy couple. There is also anti-avoidance legislation if any element of the package is printed matter (e.g: wedding invitations), so you may fall foul of that in any case.
In contrast, you may be able to arrange your affairs, with suitably worded Ts & Cs, so that you act as Agent for all (or most) of the suppliers. I suspect that will prove difficult in the event of a dispute.

Lavender2306
Posts: 21
Joined: Mon Dec 12, 2016 11:03 pm

Re: VAT disbursements on client invitation postage

Postby Lavender2306 » Thu Apr 20, 2017 3:10 pm

les35 wrote:If you provide a package of services, like a wedding planning business, it is very difficult to argue that any elements are procured as agent for the client. The whole intention of such a service is that your unique contact base is available to the happy couple. There is also anti-avoidance legislation if any element of the package is printed matter (e.g: wedding invitations), so you may fall foul of that in any case.
In contrast, you may be able to arrange your affairs, with suitably worded Ts & Cs, so that you act as Agent for all (or most) of the suppliers. I suspect that will prove difficult in the event of a dispute.


Sorry, les35, I don't understand your argument about agency relationship. Ajay is clearly acting on behalf of the happy couple and therefore is their agent. He sent the invitations with the knowledge and approval of his customer. How otherwise would he know the list of people to send the invitations to?
Agency relationship does not have to be spelt out in a contract.
But this is actually beside the point I think.
Ajay is correct that the postage costs should be treated in this case as disbursement as long as he will itemise the cost separately in his invoice to the client.
Also you refer to anti-avoidance legislation to do with printed matter. If it is not too much to ask, could you send me a link or any details on what you are talking about here. Thank you.

Lavender2306
Posts: 21
Joined: Mon Dec 12, 2016 11:03 pm

Re: VAT disbursements on client invitation postage

Postby Lavender2306 » Thu Apr 20, 2017 3:30 pm

Ajay wrote:I have a wedding planning business where I charge my client a set fee for my services.

Previously clients would contract and pay suppliers directly but as a planning service it is easier for us to deal with all payments etc.

With regards to posting their invitations, we would have these sent out. We do not make any money on top of the postage charges and we are not posting the items to the client so I would presume this can be treated as a disbursement. My accountant believes we would need to charge VAT on this and has refered me to this website: https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers and section 2.2 of this website: https://www.gov.uk/government/publications/vat-notice-70024-postage-and-delivery-charges/vat-notice-70024-postage-delivery-charges-and-direct-marketing.

These examples all refer to if I have something to send to my client, however I would be sending invitations out to my clients guests on behalf of my client so I don't understand why it would be treated any differently to any other disbursement.

With regards to other disbursements, it would be easiest for us to contract with the supplier ourselves and pass on the costs to the client for the services. If I was passing on costs as a disbursement would the client have to contract directly with the supplier and the invoices go directly to the client? I want to make it as easy for a client as possible without them having to pay any additional amounts if possible. If anyone has any other ways that this can be done please do let me know.

Thanks so much,
Ajay


First of all, I think you are correct to treat this particular postage as disbursement, but make sure you show it separately on the invoice.
Secondly, the answer to your question whether your client have to contract with your supplier directly, no.
If you passing on a disbursement then the amount passed on to the client must be VAT inclusive.
You must not claim input VAT on the disbursement and be able to show that you didn't claim input vat on disbursements to HMRC.
If invoice from a supplier is addressed to you rather than to your client then your client will not be able to claim input vat on the supply either. But I think in your business this is not important.
Thus if you are charging your client for the cost of invitation cards and postage and adding your fees for your time then you will need to charge vat only on the fees.
The other two items you shows as the amounts you paid.
Keep all original receipts and pass to your clients if they ask only copies.

Ajay
Posts: 5
Joined: Wed Apr 19, 2017 6:41 pm

Re: VAT disbursements on client invitation postage

Postby Ajay » Thu Apr 20, 2017 3:38 pm

Thanks Lavender2306 and les35.

As Lavender2306 said, that is exactly how we work and I'm finding it really frustrating that my accountant doesn't agree with me! (That it should be a disbursement) :)

I have looked a the criteria again and I've also contacted the VAT helpline. They said they couldn't advise but pointed me here: https://www.gov.uk/government/publications/vat-notice-700-the-vat-guide/vat-notice-700-the-vat-guide#supplies-made-by-or-through-agents-other-situations to point 25.1. They also said to get a definitive answer I would need to write to them.

So that's what I've done. And I have addressed each criteria and asked a couple of questions:

you acted as the agent of your client when you paid the third party: Yes
your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, phone bills, postage, and other costs being treated as disbursements for VAT purposes): Yes - The service is the delivery of the client’s invitations to their guests (This is not our cost of postage, this criteria seems to relates to us needing to send something to our client, not to send something on behalf of our client)
your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client): Yes
your client authorised you to make the payment on their behalf: Yes
your client knew that the goods or services you paid for would be provided by a third party: Yes
your outlay will be separately itemised when you invoice your client: Yes – please see further question below
you recover only the exact amount which you paid to the third party: Yes
the goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account: Yes

Question 1 – Could you please clarify whether the postage costs of sending something out on behalf of a client is a disbursement?

Question 2 – This question relates to any disbursement (for example a photographer’s fees). With regards to the criteria “your outlay will be separately itemised when you invoice your client”, does this mean the supplier should invoice my company and I would invoice the client? If so, should I also contract with the supplier?


So, I hope they understand where I'm coming from and I get a reasonable response with a good explanation. Lavvender2306, thank you so much for understanding my situation. Finally someone does :)

Ajay
Posts: 5
Joined: Wed Apr 19, 2017 6:41 pm

Re: VAT disbursements on client invitation postage

Postby Ajay » Thu Apr 20, 2017 3:41 pm

Lavender2306 wrote:
Ajay wrote:I have a wedding planning business where I charge my client a set fee for my services.

Previously clients would contract and pay suppliers directly but as a planning service it is easier for us to deal with all payments etc.

With regards to posting their invitations, we would have these sent out. We do not make any money on top of the postage charges and we are not posting the items to the client so I would presume this can be treated as a disbursement. My accountant believes we would need to charge VAT on this and has refered me to this website: https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers and section 2.2 of this website: https://www.gov.uk/government/publications/vat-notice-70024-postage-and-delivery-charges/vat-notice-70024-postage-delivery-charges-and-direct-marketing.

These examples all refer to if I have something to send to my client, however I would be sending invitations out to my clients guests on behalf of my client so I don't understand why it would be treated any differently to any other disbursement.

With regards to other disbursements, it would be easiest for us to contract with the supplier ourselves and pass on the costs to the client for the services. If I was passing on costs as a disbursement would the client have to contract directly with the supplier and the invoices go directly to the client? I want to make it as easy for a client as possible without them having to pay any additional amounts if possible. If anyone has any other ways that this can be done please do let me know.

Thanks so much,
Ajay


First of all, I think you are correct to treat this particular postage as disbursement, but make sure you show it separately on the invoice.
Secondly, the answer to your question whether your client have to contract with your supplier directly, no.
If you passing on a disbursement then the amount passed on to the client must be VAT inclusive.
You must not claim input VAT on the disbursement and be able to show that you didn't claim input vat on disbursements to HMRC.
If invoice from a supplier is addressed to you rather than to your client then your client will not be able to claim input vat on the supply either. But I think in your business this is not important.
Thus if you are charging your client for the cost of invitation cards and postage and adding your fees for your time then you will need to charge vat only on the fees.
The other two items you shows as the amounts you paid.
Keep all original receipts and pass to your clients if they ask only copies.


Sorry, I've only just seen that you responded to this one too. This is exactly what I thought and wanted clarification on. I hope you don't mind me asking, but by any chance do you work as an accountant or tax advisor? I just want to be able to go back to my accountant and say who I got the information from.

Thanks so much! :)

section 44
Posts: 4467
Joined: Thu Oct 30, 2008 12:47 pm

Re: VAT disbursements on client invitation postage

Postby section 44 » Thu Apr 20, 2017 4:04 pm

Ajay wrote:your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client): Yesyour client authorised you to make the payment on their behalf: Yes


How is the postage dealt with?

Ajay
Posts: 5
Joined: Wed Apr 19, 2017 6:41 pm

Re: VAT disbursements on client invitation postage

Postby Ajay » Fri Apr 21, 2017 9:21 am

section 44 wrote:
Ajay wrote:your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client): Yesyour client authorised you to make the payment on their behalf: Yes


How is the postage dealt with?


I'm not sure what you mean...

The client will give me a list of their guests names and addresses, I will address their invitations then I would go to the post office and send them all out to their guests. They will be paying for the postage. Obviously it wouldn't be practical for them to come to the post office to pay for the postage themselves which is why I would like to do this as a disbursement.

section 44
Posts: 4467
Joined: Thu Oct 30, 2008 12:47 pm

Re: VAT disbursements on client invitation postage

Postby section 44 » Fri Apr 21, 2017 9:51 am

Ajay wrote:your client was responsible for paying the third party


So do you go to the Post Office and they hand over the postage stamps to you? How is your client responsible for paying the Post Office for the stamps? If you walked out of the Post Office without paying would the Post Office's only remedy be to pursue your client for non-payment or might they consider that you should have paid?

If you pay the Post Office then does your client first put you in funds for this or are you bearing the risk of your client not paying you?

Ajay
Posts: 5
Joined: Wed Apr 19, 2017 6:41 pm

Re: VAT disbursements on client invitation postage

Postby Ajay » Fri Apr 21, 2017 10:04 am

section 44 wrote:
Ajay wrote:your client was responsible for paying the third party


So do you go to the Post Office and they hand over the postage stamps to you? How is your client responsible for paying the Post Office for the stamps? If you walked out of the Post Office without paying would the Post Office's only remedy be to pursue your client for non-payment or might they consider that you should have paid?

If you pay the Post Office then does your client first put you in funds for this or are you bearing the risk of your client not paying you?



We go to the post office and pay for the postage, they stick it on the invitation. The client is responsible because they are their invitations to send out. If I walked out of the post office without paying of course I would be the one they would be interested in as they don't know the client.

Either the client can send money first or after once the postage costs are known.

I understand your argument with regards to the post office pursuing me instead of the end client, however if it was a photographer for example, if there was no payment they would also come to me if they knew I was planning on making payment on the client's behalf.


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