A VAT Quirk
Ouch! Bitten by a VAT quirk! Contractors – read this.
If you’re doing a contract, typically you’ll provide an invoice to a customer which lists your fees, plus any expenses incurred in performing that contract (assuming you’ve persuaded them to pay your expenses). For my last contract, nearly all of those expenses were train fares to and from the place of work. So, my invoice might have looked like this:
| Item | Net | VAT | Total |
|---|---|---|---|
| Fees | £100 | £17.50 | £117.50 |
| Phone | £25 | £4.38 | £29.38 |
| Train | £25 | £0 | £25 |
| Total | £150 | £21.88 | £171.88 |
Note that there’s no VAT on the train fares. That’s because train fares are public transport, which attracts a 0% rate of VAT.
And therein lies the problem. Even though train fares don’t attract VAT, when I put them on an invoice for my services, apparently they are not train fares any longer. They’re part of the service I’m providing, and therefore should have attracted standard 17.5% VAT.
Sadly I didn’t know this, and didn’t find out until I went to an HMRC seminar last week. (Yes, yes, I accept it’s my responsibility to know all these things – but as I’ve said in a previous post, you can’t keep on top of everything and still have time to actually do any work.) So I am £66 down, assuming I correct this mistake on my next VAT return, and assuming I don’t try to squeeze this money out of my customer due to wanting to save face.
Oh well. Ho-hum.
I think I will be signing up to the flat-rate VAT scheme soon, to save myself some paperwork.