In practice, fiscal rules are often not followed when re-invoicing expenses, which can lead to issues during a fiscal audit. There are three possibilities for recharging expenses in relation to VAT, each leading to a different VAT arrangement. If the re-invoicing is part of providing a service or supplying goods, the expenses form part of the taxable amount for that service or supply. If the expenses are re-invoiced separately and not part of other work, the entity liable for VAT is considered to have provided and received the services or supplies. Amounts advanced for expenses incurred in the name of a client can be reclaimed from the counterparty that is the legal or contractual debtor. These principles apply to the determination of location, rate, and payment of VAT.
Source Moore
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