VAT on personal expenses
Discussion
I've just had an inspection from the VAT man, who was happy with everything except one thing.
About 2 years ago I did some work in Manchester for the client I was working for at the time, and this involved me spending 2 weeks up there and incurring some expenses (travel, hotels and food).
I paid for these personally, and sent the receipts off to my agency, who I assume then claimed the money back from the client. The agency then paid me a lump sum for the total amount that I had paid out. I didn't invoice the agency for this in my normal "work" invoice.
I then added this amount as a zero VAT rated item to the same invoice in Quickbooks, so that I'd have something in my accounts to reconcile with the cash arriving in the business account, and then I paid the money to myself as an expense repayment. This means that the invoice in Quickbooks has an entry for the expenses, however the invoice sent to my agency does not.
Mr VAT man is now saying that I should pay VAT on this amount, however I won't be able to reclaim any VAT as it is likely that my agency would have done so.
He's not 100% sure though, so I was wondering if anyone here knows what the deal is with this. I don't want to be in a position where I'm charged VAT on this amount, but then can't claim it back.
About 2 years ago I did some work in Manchester for the client I was working for at the time, and this involved me spending 2 weeks up there and incurring some expenses (travel, hotels and food).
I paid for these personally, and sent the receipts off to my agency, who I assume then claimed the money back from the client. The agency then paid me a lump sum for the total amount that I had paid out. I didn't invoice the agency for this in my normal "work" invoice.
I then added this amount as a zero VAT rated item to the same invoice in Quickbooks, so that I'd have something in my accounts to reconcile with the cash arriving in the business account, and then I paid the money to myself as an expense repayment. This means that the invoice in Quickbooks has an entry for the expenses, however the invoice sent to my agency does not.
Mr VAT man is now saying that I should pay VAT on this amount, however I won't be able to reclaim any VAT as it is likely that my agency would have done so.
He's not 100% sure though, so I was wondering if anyone here knows what the deal is with this. I don't want to be in a position where I'm charged VAT on this amount, but then can't claim it back.
There is always lots of debate about this. I may have it wrong as well.
I assume you are a contractor operating as a company. So it is not you incuring the expenses, it's your company. If so I believe you do need to pay the VAT on that.
Often what has occur to me is that the company I am contracted to insists that expenses be entered into some intranet style thing that pays the expenses to a bank account or something like they do for normal employees. I know of many contractors who are not paying VAT on that, But they are not putting the expense throught their own company accounts.
Good luck... don't give them my name ;-)
Red.
I assume you are a contractor operating as a company. So it is not you incuring the expenses, it's your company. If so I believe you do need to pay the VAT on that.
Often what has occur to me is that the company I am contracted to insists that expenses be entered into some intranet style thing that pays the expenses to a bank account or something like they do for normal employees. I know of many contractors who are not paying VAT on that, But they are not putting the expense throught their own company accounts.
Good luck... don't give them my name ;-)
Red.
redgta said:
I assume you are a contractor operating as a company.
Yep
redgta said:
So it is not you incuring the expenses, it's your company. If so I believe you do need to pay the VAT on that.
Often what has occur to me is that the company I am contracted to insists that expenses be entered into some intranet style thing that pays the expenses to a bank account or something like they do for normal employees. I know of many contractors who are not paying VAT on that, But they are not putting the expense throught their own company accounts.
So if they charge me the VAT on the amount I received from the client, then I can put the hotel bills etc... through my company and claim the VAT back on that?
I'm guessing it would have been easier if they'd simply repaid me into my own bank account, but it's too late for that
When you run your own business, you should not really be in the "expense claiming" game. That is something employees do. Sole traders or limited companies "charge" for their services. If they need to charge extra amounts to cover their incidental "expenses", then they should raise a sales invoice covering these costs in the normal way. If they are VAT registered, they should charge VAT on these invoices as normal.
Also, even if the cost you are trying to recover was originally Zero or Exempt rated (such as train fares or 'plane fares), your business MUST charge VAT on those invoices.
In certain circumstances, you might be able to get away with claiming that they are "recharges" rather than genuine sales invoices and escape the necessity to add on the VAT amount. However, the number of circumtsances where this tactic can be used is limited and it is usually only allowed for specific types of businesses - like solicitors or garages when they re-charge VAT free MOT costs to their customers.
Also, even if the cost you are trying to recover was originally Zero or Exempt rated (such as train fares or 'plane fares), your business MUST charge VAT on those invoices.
In certain circumstances, you might be able to get away with claiming that they are "recharges" rather than genuine sales invoices and escape the necessity to add on the VAT amount. However, the number of circumtsances where this tactic can be used is limited and it is usually only allowed for specific types of businesses - like solicitors or garages when they re-charge VAT free MOT costs to their customers.
ehasler said:
So if they charge me the VAT on the amount I received from the client, then I can put the hotel bills etc... through my company and claim the VAT back on that?
I'm guessing it would have been easier if they'd simply repaid me into my own bank account, but it's too late for that
Yes, you could claim the vat back...
Yes, I do it outside the company accounts and receive the money back into my personal account... Just becuase I can't be shagged keeping track of it all. What you have done has not reduced the net amount of money the revenue have received, but you are guilty of not doing the all the admin... And after all, running a small company is not about contributing to the economy, it's about doing loads and loads of admin for the government.
Eric Mc said:I agree, and most of my contracts have allowed me to invoice for expenses, however in this case it wasn't possible - the client had a set procedure for reclaiming expenses, and I wasn't able to issue a separate invoice for it.
When you run your own business, you should not really be in the "expense claiming" game. That is something employees do. Sole traders or limited companies "charge" for their services.
Even if you weren't able to issue a proper invoice to your customer (for whatever dumb internal reasons of their own), you are obliged under VAT regulations to raise a VAT invoice anyway and account for the VAT on the "sale". The VAT man would actually be delighted that your customer refuses to accept such an invoice because it means they aren't going to reclaim the VAT back - which, in most cases, they would be entitled to do.
As I mentioned earlier, there are some occasions where YOU have to raise VAT on an "expense" invoice even when the original expense you are trying to recover did not have any VAT on it.
>> Edited by Eric Mc on Friday 27th January 13:20
As I mentioned earlier, there are some occasions where YOU have to raise VAT on an "expense" invoice even when the original expense you are trying to recover did not have any VAT on it.
>> Edited by Eric Mc on Friday 27th January 13:20
Thanks Eric.
Am I right in thinking then that the correct way for me to have done this would have been to invoice my agency for the expenses (including VAT) anyway, even though I was actually paid by their non-contractor friendly expenses system, and for me to then enter each expense into my accounts, again including VAT?
On a slightly different question - is it possible to claim back lost income if C&E miss an appointment? This inspection was supposed to be last month, however he didn't turn up and I lost a day sitting around waiting instead of working. C&E have already admitted that they made a mistake with the booking, but I'm the one who's out of pocket...
Eric Mc said:And I assume in these situations I would lose out, as I'm unable to claim back the VAT that I raise?
As I mentioned earlier, there are some occasions where YOU have to raise VAT on an "expense" invoice even when the original expense you are trying to recover did not have any VAT on it.
Am I right in thinking then that the correct way for me to have done this would have been to invoice my agency for the expenses (including VAT) anyway, even though I was actually paid by their non-contractor friendly expenses system, and for me to then enter each expense into my accounts, again including VAT?
On a slightly different question - is it possible to claim back lost income if C&E miss an appointment? This inspection was supposed to be last month, however he didn't turn up and I lost a day sitting around waiting instead of working. C&E have already admitted that they made a mistake with the booking, but I'm the one who's out of pocket...
You cant't claim back lost "time" as an "expense". The fact that you were not able to bill for that period is the "loss" incurred and, since no bill was raised, no tax liability (either Income Tax/Corporation Tax or VAT will arise).
Your conclusion regarding billing is correct. If you do the work - you raise a bill. If you want to recover a cost from yout customer - you raise a bill. If you are a VAT registered trader - you add VAT onto your bill totals.
Obviously, you don't "claim" VAT on moneys you bill to your customer. In fact, you "declare" it and pay it to the VAT man (having first deducted the Input VAT on your allowable VAT'ed business costs, of course).
I always feeel I have to ask people when they raise such basic issues - have you got an accountant and, if you do, what type of advice are you getting from him/her?
>> Edited by Eric Mc on Friday 27th January 14:33
Your conclusion regarding billing is correct. If you do the work - you raise a bill. If you want to recover a cost from yout customer - you raise a bill. If you are a VAT registered trader - you add VAT onto your bill totals.
Obviously, you don't "claim" VAT on moneys you bill to your customer. In fact, you "declare" it and pay it to the VAT man (having first deducted the Input VAT on your allowable VAT'ed business costs, of course).
I always feeel I have to ask people when they raise such basic issues - have you got an accountant and, if you do, what type of advice are you getting from him/her?
>> Edited by Eric Mc on Friday 27th January 14:33
Eric Mc said:Are we not allowed to ask "basic" questions
I always feeel I have to ask people when they raise such basic issues - have you got an accountant and, if you do, what type of advice are you getting from him/her?
It may be basic to you, but this is the first and only time I've had to put such an expense through my company (i.e., one that was paid for directly by the client), and I thought I'd post here for some advice.
If you must know, I do have an accountant, and I have asked them the same question however they haven't got back to me with a respose yet, plus it doesn't hurt to get a 2nd opinion.
I wasn't having a go at you - but perhaps the advice (or lack of same) you might be getting from your accountant.
I'm always happy to pass my knowledge on to those who ask - but I do wonder about what information their "official" accountant is imparting. After all, they are getting paid for the advice they give.
I'm always happy to pass my knowledge on to those who ask - but I do wonder about what information their "official" accountant is imparting. After all, they are getting paid for the advice they give.
Eric Mc said:I wasn't really concerned about the tax or VAT aspect of the missed day - more that I lost a day's work due to their mistake and I'm interested to know if there is any way to be compensated for this. After all, I'm sure that if I'd booked someone to do some work at home, but I forgot and went out for the day so they lost a day's work, I'd expect to be asked to pay for their wasted time.
You cant't claim back lost "time" as an "expense". The fact that you were not able to bill for that period is the "loss" incurred and, since no bill was raised, no tax liability (either Income Tax/Corporation Tax or VAT will arise).
Eric Mc said:I agree with all that, although when I said "claim it back" I was referring to the fact that in the example you gave, I would charge VAT on the expense on my invoice, and would pay this to the VAT man. If however the original expense to me did not have any VAT on it, then I would not be able to deduct this - therefore I'd lose out.
Your conclusion regarding billing is correct. If you do the work - you raise a bill. If you want to recover a cost from yout customer - you raise a bill. If you are a VAT registered trader - you add VAT onto your bill totals.
Obviously, you don't "claim" VAT on moneys you bill to your customer. In fact, you "declare" it and pay it to the VAT man (having first deducted the Input VAT on your allowable VAT'ed business costs, of course).
>> Edited by ehasler on Friday 27th January 14:52
Eric Mc said:It didn't occur to me to ask them at the time - I (in hindsight, foolishly) followed the procedure that I was asked to by the client. It's only today that it has become an issue, and I have asked them the same question.
I wasn't having a go at you - but perhaps the advice (or lack of same) you might be getting from your accountant.
As is often the case though, you get a quicker response on PH
Absolutely correct.
The principal is this - the Royal Mail/Train Companie/Airlines etc do not charge VAT on their activities because they are specially exempted from doing so under UK VAT legislation. If you, as a normal VAT registered trader want to recharge these types of costs to your customers, you cannot avail yourself of these specific exemptions and you have to add VAT onto your recharged amount.
It's a tad unfair to be honest.
The principal is this - the Royal Mail/Train Companie/Airlines etc do not charge VAT on their activities because they are specially exempted from doing so under UK VAT legislation. If you, as a normal VAT registered trader want to recharge these types of costs to your customers, you cannot avail yourself of these specific exemptions and you have to add VAT onto your recharged amount.
It's a tad unfair to be honest.
I was told to charge the full amount of the expenses, and add VAT to that: so a £65.00 hotel room is plus VAT (£76.38). I reclaim the VAT on the £65 (9.68p), and the client reclaims the VAT I have charged them..I think.
I had a problem with independents working for me who would not give me the original receipts, as they were claiming the VAT back. The arrangement I have now seems to make sense in that they can now reclaim the VAT on the expenses incurred and I preclaim the VAT on their invoice from the VAT man.
I had a problem with independents working for me who would not give me the original receipts, as they were claiming the VAT back. The arrangement I have now seems to make sense in that they can now reclaim the VAT on the expenses incurred and I preclaim the VAT on their invoice from the VAT man.
If a sub-contrator (i.e a separate self-employed individual as opposed to a "proper" employee) incurs a cost which contains VAT when working for you - the cost is HIS, not yours, and he can reclaim the VAT. He is legally obliged to retain the original VAT voucher so that he can successfully reclaim the VAT. He should not pass the voucher on to you.
He should, of course, charge you with HIS OWN INVOICE and at that point YOU can then reclaim the VAT based on what HIS invoice to you shows.
He should, of course, charge you with HIS OWN INVOICE and at that point YOU can then reclaim the VAT based on what HIS invoice to you shows.
Eric Mc said:
Absolutely correct.
The principal is this - the Royal Mail/Train Companie/Airlines etc do not charge VAT on their activities because they are specially exempted from doing so under UK VAT legislation. If you, as a normal VAT registered trader want to recharge these types of costs to your customers, you cannot avail yourself of these specific exemptions and you have to add VAT onto your recharged amount.
It's a tad unfair to be honest.
Eric,
If I understand this correctly, is the below correct:
My employee (me) occurs an expense that he (I) claim back from my company. This was an expense incurred performing a task for a client, where the company-client contract states that expenses will be charged 'at cost'.
1. Expense is car parking, £11.75 (inc VAT). Employee claims £11.75 from company. The company then include a line item on it's invoice to the client of £10 + VAT. In this example, where VAT was included in the original expense, I do not charge it 'twice'?
2. Expense is a rail fare, £10 (no VAT). Employee claims £10 from company. The company then include a line item on it's invoice to the client of £10 + VAT. In this example, my client does not lose out as the VAT on the rail fare expense can be reclaimed?
If the above it correct then both I may have got it wrong a couple of times over the few months - i.e. I have not been charging VAT on 'exempt' items. Rather frustratingly, my accountant actually specifically questioned the lack of VAT on these expenses on one occasion, but on production of copies of my invoices he has let the matter go.
Time for a new accountant perhaps? Do you offer a PH discount?
Eric, you can count me as an extra client, for next year if you like. I am no longer VAT registered, I couldnt devote my life to the complexities of Income Tax, and then "Value" added tax on top.Gassing Station | Business | Top of Page | What's New | My Stuff