Charging VAT on non VAT outlays

Hi,

A friend had just started working in a service firm where they have a high level of direct outlays (payable on behalf of clients to a public office similar to the CRO) that should be 0% VAT but are charging it out at 23% VAT. When he questioned this practice he was told that it’s the way that it’s always been done and no further explanation was given.

An example of this would be charging a client €120 + VAT @ 23%. Of this €120, €100 is a professional fee and €20 is a non VAT expense paid to a 3rd party. Instead of charging €143 (€100 @ 23% VAT + €20 @ 0% VAT) they would charge €147.60 (€120 @ 23%).

The company declares all the VAT charged to the revenue and all of their clients are VAT registered companies who have the ability to claim it back so they are not profiting from this practice.

My questions are

1. Is it a case that they should implement a new invoicing policy with the correct VAT rates now or will they be required to go back over the last 6 years accounts and amend each invoice?
   
   
2. How would the revenue view this? Is the firm liable for potential fines? If so, what are they likely to be?
   

My advice to him was to contact the revenue directly and ask but he was hesitant to do so as he doesn’t wish to shine a light on the issue until he knows the potential issues that may arise.

Any advice here would be greatly appreciated.


Many Thanks

David

I am not a VAT expert. I'm involved in services and invoicing with VAT but AFAIK, this is correct practice.

VAT is surprisingly complicated. One of the rules is that is a supply consisting of a combination of goods and/or services chargeable at different VAT rates for a single price is chargeable at the highest rate applicable to any of the items in the package.

If I were him, I'd leave it to the accounts department in the company to decide on VAT policy.

David1234 said:

My advice to him was to contact the revenue directly and ask

Click to expand...

You are foolish to be advising a friend on such matters.

Revenue won't entertain a query from him on this or any other aspect of the company's tax affairs unless they hold specific authorisation from the company mandating them to discuss company details with him.

I concur with the previous comments.

Cheers for the replies.

I should of mentioned that my friend is the most senior finance employee so the book stops with them.

I thought it was straightforward but obviously it’s not given the responses.

I’ll get him to look at getting specific VAT advice.

Thanks
David