Input VAT recovery when recharging expenses

VAT Question

My client is a marketing consultant recharging his overseas business customers for travel, materials and entertainment expenses incurred in the UK. Can he reclaim the related input VAT?

VAT Answer

Firstly, we need to look at the VAT treatment of his main supply, his services, and in this query we are following the B2B General rule s 6.3 in VAT Notice 741A, Place of Supply of Services (POSS), this will be where the Customer is located. (Please note the general rule does not always apply, see exceptions to the general rule s 6.4).

The recharging of expenses always follows the main supply so if the management consulting services are Standard Rated (SR) or Outside the Scope (OSS) or subject to Reverse charge mechanism (RC) then so are the recharges. We have 3 different VAT treatments, it all depends on where the business customer is located;

B2B to UK – If your client were to make supplies of services and recharges to a business customer in the UK, they would be recharged with SR VAT applied and importantly as these are taxable supplies when made in the UK, then the related input VAT incurred is recoverable.

B2B to EU – The same supplies of services and recharges made to a business in the EU are treated as OSS – RC applies. IF these supplies were made in the UK then the related input VAT would be recoverable and so the same rule applies on sales and recharges B2B to the EU – the related input VAT incurred is also recoverable.

B2B to ROW – The same supplies of services and recharges made to a business outside of Europe (known as Rest of the World – ROW) are treated as OSS. Again, IF these supplies were made in the UK then the related input VAT would be recoverable and so the same rule applies on sales and recharges B2B to ROW – the related input VAT incurred is also recoverable.

So, to summarise, (and take a deep breath here!) If you make sales of services and recharges B2B to the EU or ROW as covered by VAT Notice 741A POSS, then the related input VAT incurred in the UK is also recoverable, when it relates to supplies that would have been treated as SR, if they would had been made to a customer in the UK.

Annette Woods – Vantage Fee Protect Tax Consultant