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.
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.
