VAT on Disbursements

by **Jaria** on Mon Feb 08, 2010 2:39 pm

Hi
We act for as agents for a small residential property and have for some years been preparing the caretakes wages. As my company actually pays the wages and then gets reimbursed out of the property service charge we add VAT to the wages NIC etc. Having recently changed auditors they have suggested that we should not have been adding VAT.

We added VAT in the first place because a VAT inspection some years back (when we didn't add VAT) told us we had to for 3 other properties that we managed and in fact went back 3 years and demanded the VAT we should have charged.

Can someone help please and let me know whether it is coreect to add VAT or not and if so why or why not

We have asked HMRC but they seem just as confused one person says we do the other says we dont and another says he will have to check

Many thanks in advance for your help on this.

J

by **Generix** on Mon Feb 08, 2010 3:50 pm

On an initial read it doesn's sound as if it qualifies as a disbursement.

You need to decide what you will charge (i.e. whther the recharge will include the cost of NIC etc) and then add VAT to this charge.

by **Jaria** on Mon Feb 08, 2010 5:07 pm

Thanks for that.

You are quite right in that this is a recharge and not a disbursement. I think our auditors think it is a disbursement.

The cost that we invoice is Wages plus NIC = Total + VAT = invoice Total.

I believe that to be correct

Regards

J

by **robbob** on Mon Feb 08, 2010 5:44 pm

Hello Jaria

Who is the contract of employment between - or who contracts for the services with the person if he is self employed?

I would guess the answer to your question will be found by looking at the attached link
http://www.taxationweb.co.uk/forum/posting.php?mode=reply&f=13&t=29619

If the contract is between the residential property and the caretaker i would imagine it is a "non vatable" disbursement - providing all the requirements from the attached link are met.
If the contract is between you the agent and the caretaker i would imagine this is not a disbursement that is ignored for vat purposes.

This can be a tricky area so if you are not 100% certain of the treatment it may be sensible to get written confirmation from the vat office.