Expenses paid by agency

[chicane]

I've recently spent a week working on the current client's sites in mainland Europe during which I've had to fund my own accommodation/meals/taxis etc to be paid back by the agency at a later point. I've spoken to the agency about their expenses process and outlined below how I believe MyCo and myself would fit into this process.

• I've incurred expenses personally in a mix of GBP and EUR and submit an expenses form to the agency detailing these expenses.
• The agency has stated that they will convert the EUR amount to GBP using their reference exchange rate and calculate the total expenses amount owed in GBP
• By way of the standard monthly self-billing mechanism, the agency will pay MyCo for the days worked plus VAT (as normal), plus the expenses amount determined previously. VAT is not added onto the expenses amount.
• Once the invoice mentioned in the previous step has been paid, MyCo then pays me personally the expense amount determined above.

Every step of the above process makes sense, however the only nagging doubts in my mind are as follows:

1. How I would justify to the VAT man that the expenses element of the stated invoice would not be subject to VAT? I've seen other companies do this - for example my mobile phone invoice includes an insurance element that is not VATable. However, I've never been in a situation where MyCo has submitted an invoice where not all of the amount is subject to VAT.
2. If I have incurred the expenses personally, it seems a little odd from an accounting standpoint that the repayment of these expenses should make their way to me from the agency via MyCo. I'm thinking that it may look as if MyCo has recieved a payment as a result of issuing an invoice, then paid around £500 of that money directly to me with no mention of personal tax or dividends. Obviously, I have receipts (and hopefully mention of expenses on the self-bill invoice) to account for the expenses incurred - but it still doesn't seem quite right somehow.

Help/advice/suggestions to ask my accountant/suggestions to read the first timers guides all gratefully appreciated - thanks.

[Sockpuppet]

They are wrong. VAT must be added to expenses. There is no VAT on financial products hence why its not charged on insurance.

They are not paying VAT on the expenses rather the service of you using them and as you have to charge VAT they have to pay it. If they refuse then tell the vat man. They will not take kindly to it.

In any case the agency is vat registered so why do they care. They get the money back.


You are employed by your co. DO NOT accept payment direct from the agency to you.

They need to discharge the debt to your company and also you don't want a personal link to the agency.

As you have reciepts your co can reimburse you the money without having any tax effect as long as the expense was incurred wholly in the course of business.

Better still get a company credit card, stick it all on there and get your co to pay it off.

No money need be sent to yourself then!

[expat]

They are wrong. VAT must be added to expenses. There is no VAT on financial products hence why its not charged on insurance.

They are not paying VAT on the expenses rather the service of you using them and as you have to charge VAT they have to pay it. If they refuse then tell the vat man. They will not take kindly to it.

In any case the agency is vat registered so why do they care. They get the money back.


You are employed by your co. DO NOT accept payment direct from the agency to you.

They need to discharge the debt to your company and also you don't want a personal link to the agency.

As you have reciepts your co can reimburse you the money without having any tax effect as long as the expense was incurred wholly in the course of business.

Better still get a company credit card, stick it all on there and get your co to pay it off.

No money need be sent to yourself then!

1. If you personally are being reimbursed for allowable expenses, it doesn't matter to you who does the reimbursing. It may matter to them, but that's not your problem.

2. If YourCo is reimbursing you, and these costs are legitimate for YourCo, then it can be reimbursed these costs from its contractual partner, the agency. In this case it would not add VAT.

3. Alternatively, YourCo could reimburse you, and bill the agent for the service: in this case it is a sale, not a reimbursement, and YourCo would add VAT.

This is quite different from case 2. To demonstrate this, observe that case 3 is still valid from an accounting and tax point of view if YourCo bills the agent an amount different from the actual expenses: from a business point of view the agent may refuse that, but from an acct & tax point of view it would be legit. Not so for case 2, where claiming a different amount would be wrong.

[b0redom]

I always do #3.

[chicane]

Thanks for the replies folks - much appreciated.

2. If YourCo is reimbursing you, and these costs are legitimate for YourCo, then it can be reimbursed these costs from its contractual partner, the agency. In this case it would not add VAT.

It sounds like the agency is going to stick to their guns and insist on approach #2 listed above, however:

observe that case 3 is still valid from an accounting and tax point of view if YourCo bills the agent an amount different from the actual expenses: from a business point of view the agent may refuse that, but from an acct & tax point of view it would be legit. Not so for case 2, where claiming a different amount would be wrong.

OK - to ensure that I'm legit when following case 2 I can simply wait for the agency to calculate the amount owed in expenses using their reference exchange rate, and then pay myself from MyCo when this amount is determined and paid to MyCo. However, this then raises further questions from a VAT perspective.

If I was to mark on the next VAT return that 10,500 was made in sales (ie 10,000 for MyCo services + 500 for expenses), yet the VAT payable was just marked down as 1,750 (rather than 1837.50), would this not raise a few eyebrows with the VAT man? Or would I simply record 10,000 in sales and 1,750 in VAT, and ignore the expenses repayment element of the self-bill invoice in VAT return calculations?

Either way, I'm assuming that I'd also need to ensure that the agency made a clear distinction between the expenses element of the payment to MyCo (no VAT) and the payment for goods and services supplied (VAT). Would this, in conjunction with all receipts, be sufficient documentation to demonstrate to the VAT man and Hector that MyCo's activities were above board?

[Integrity]

2. If YourCo is reimbursing you, and these costs are legitimate for YourCo, then it can be reimbursed these costs from its contractual partner, the agency. In this case it would not add VAT.

It is possible to do this, but the amount you receive will be effectively at 117.5%, meaning that when HMRC get their share, you will lose 15% of your expenses claim. If YouCo is VAT registered, or not registered and needed to be registered, it doesn't matter if you charge VAT or not, the gross amount received will always he deemed to include VAT.

4. YourCo pays the expenses directly as needed. YourCo invoices Client for expenses + VAT. Client pays YourCo.

You don't need to be involved, unless you actually pay cash for something. In most cases, I would expect what you personally claim to be different to what YourCo claims because not all expenses will be chargable to a single client, and will include other expenses for different business activities.

Note: I use the word Client to mean the recipient of the invoice, not necessarily the recepient of the services.