# Passing on expenses to clients - net or gross amount + VAT?



## fizzy (9 Feb 2011)

I have recently become VAT registered and am confused about how to treat expenses which I pass on to clients at cost. 
I make websites so these expenses would largely be CMS components, themes etc which I purchase for clients because it's easier, and then invoice to them at cost along with my own fee.

At a DCEB one day accounts course, I was told that I would charge the client the ex VAT amount I had paid + VAT i.e. the standard price incl VAT which they would have paid themselves, or which I would have charged them in my pre VAT registered days.
e.g. I buy a widget for 10 ex VAT (paying 12.10 and reclaiming the 2.10 VAT) and charge the client 10 (the true cost to me) + VAT = 12.10 (and the client can reclaim the 2.10 VAT if registered)

However, when I called Revenue on this, the guy I spoke with said that I should charge the full VAT inclusive amount I had paid + VAT on top of this, so that the customer pays more than they would have paid if they had purchased the item themselves:
e.g. I buy at 10 ex VAT, paying 12.10 and then charge the client 12.10 + VAT = 14.64 
=> true cost to client if vat regd = 12.10 > 10 if they bought direct
and true cost if client not vat regd = 14.64 > 12.10 if they bought direct
It seems unfortunate to me that me buying software on behalf of clients  would cost them more than if they bought it directly themselves. 

While I realise that the info from Revenue should be correct, the person had to go off to ask someone else about it, so I'm still unsure. Is there a definitive written ruling/explanation of this anywhere? 

I had read the Revenue small business guide to VAT but could not find this info, and also scanned the much longer VAT guide on the Revenue website and while I found an example explaining that you must add VAT to expenses you pass on, the example did not contain any passed on costs that the invoicer would have paid VAT on themselves.

Thanks for your time.


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## T McGibney (9 Feb 2011)

You are free to charge them as much or as little as you like, once you make sure to add 21% VAT on each invoice.

Bear in mind that  when you buy software on behalf of clients, it should normally cost them at least a little more than if they bought it themselves, as there is a time/effort/expertise factor involved. That said, it is totally up to you whether you charge a little extra for your time/effort. Perhaps you may already be charging them for your time on the job, in which case another charge for time/effort may be inappropriate. Its your call...


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## fizzy (9 Feb 2011)

T McGibney said:


> You are free to charge them as much or as little as you like, once you make sure to add 21% VAT on each invoice



*Many* thanks for the quick reply on this Tommy. This one line from you caused the lightbulb to go off! 
I have been so tangled up with getting to grips with the ins and outs of VAT, but I can now see that it's very simple here. All I have to do is charge VAT on whatever I want to charge the customer.

So, if I just want to recoup the cost of goods sold, I can just charge the client the ex VAT amount I paid (the true cost to me) + VAT?! 

Thanks so much again for clearing my mental block


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## JoeB (9 Feb 2011)

yes, you are free to charge whatever you like, and ideally, that should be more than you pay. You may not be charging explicitily.. but you should be charging somehow.


If you charge 13.5% on your services then you may be able to puchase at 21% VAT, and sell it on for 13.5%, subject to the two thirds rule.

For example, I make kitchens. I purchase worktops at 21% VAT, but I only charge 13.5% on my finished kitchens... which might include worktops. This is ok, as far as I know,.. as long as the products purchased don't amount to more than 2/3rds of my ex VAT bill.  

If your customers think your prices are too high and you cannot reduce them then let the customers walk...


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## fizzy (9 Feb 2011)

Thanks for the info Joe. I'm lucky in that the vat rate for web development is 21%, so all invoices will be at the one rate regardless of composition.


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## bluemac (9 Feb 2011)

fizzy

when i charge out websites
usually i buy the domain name and the years hosting from a provider.

I charge say €25 for a .com name per year and €100 hosting so €125...

real cost to me might be 50

the reason I charge more is I have to set up the account pay the invoice invoice the client etc etc and also you are then there port of call for support...  (my emails down etc etc)

I do the same for postage set price €25 local €50 and €100 international..
some one has to pay you to drive to the post box, buy the envelopes do your accounts for those items etc etc.. 

I dont think I have ever passed on a cost like for like to a client.. as if you did you not being paid for your time


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## Crugers (9 Feb 2011)

fizzy said:


> ...All I have to do is charge VAT on whatever I want to charge...


 
Unless as part of your T&C's that you state that you charge for 'widgets' at cost.
In that case you would (as per your example) charge them €10 and add VAT @ 21% , just as you had surmised before the Revenue stuck their spoke into the wheel and sent you spinning!


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## fizzy (10 Feb 2011)

Thanks for your input Crugers and Bluemac.

I totally get your point Bluemac. I don't buy hosting for clients full stop, specifically to avoid issues re support and renewals - even with a markup, it's just not worth the hassle to me.

All I'm talking about here is buying one off plugins/software licences. People could easily check the prices of these themselves, and it's quicker for me to buy them than talk them through doing so. In the scheme of building a website, buying a few components for it is trivial, so I'm happy to pass this on at cost. 

But I do realise that it's vital to charge adequately overall, because I know that the 'unbillable' time spent on admin,comms,pm,sales etc can so easily have you working all hours for peanuts!

Thanks again for everyone's time - can't believe I got myself so tangled over something so clear cut and obvious - d'oh!


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