Reply to: Getting business expenses paid from client (agency)

[northernladuk]

How far back 3-4mths? I have two payments (Nov and Feb) from business trips at clients expense and awaiting accountant to respond with how i should proceed!

If you leave it in to the next financial year you are going to ruffle a lot of feathers. They have done their books and won't appreciate you messing them about IMO

[scooby]

yes, as long as you were VAT registered at the date you're trying to invoice back to.

How far back 3-4mths? I have two payments (Nov and Feb) from business trips at clients expense and awaiting accountant to respond with how i should proceed!

[Clare@InTouch]

Can you invoice VAT retrospectively?

yes, as long as you were VAT registered at the date you're trying to invoice back to.

[scooby]

Can you invoice VAT retrospectively?

[topper]

I have just done this exact scenario and invoiced the client direct, I am not VAT registered yet but soon will be (was thinking on FRS), but I think I will have a hard time getting the client to pay VAT on the gross expenses, and I will have to either

a) go full VAT registered, claim my own VAT back and invoice net expenses plus VAT

or

b) Stay FRS and take the hit and invoice net expenses + VAT and be out of pocket by 13.5% luckily I am not talking about £1500 expense claims!

My client pays mileage at 40ppm, but I personally claim 45ppm from my LTD, meaning technically my LTD has made a loss and thus a reduction in CT? Is my thinking correct there?

[dagenheis]

Have a read of this:

HM Revenue & Customs: Costs passed on to clients - disbursements - and VAT

Any costs that your business incurs itself in the course of supplying goods or services to customers are not disbursements for VAT purposes. It's you, and not your customer, who purchases the goods or services, which are supplied to and used by your business.
It's up to you whether or not you itemise costs like these on your invoices. If you do show them separately when you invoice your customers then they're known as 'recharges', and not disbursements, for VAT. You'll have to charge VAT on them whether you paid any VAT or not.

Thanks for sharing the link; Seems like my expenses are 'recharges' rather than disbursements, so I have to issue VAT invoice now.

Just to be clear, all of the expense such as hotel bill, meals, taxis incurred outside UK, plus a couple of taxi bills within the UK, so there wasn't any VAT charged. I suppose, I should still treat them as "recharges".


@TheFaQQer, You are right, I missed the point earlier that I will have to incluide expenses as income in the VAT return which will result in 20% payment even if I don't include VAT on my invoice.. That's not sustainable indeed.

Ta,

[TheFaQQer]

I did not add VAT on the invoice but losing a bit of VAT savings is not my concern as long as we are just following the right process.

It's not quite losing a bit of VAT savings, though.

Expenses come to £100.

You invoice client for £100 (because you didn't add VAT to them).

£20 now goes to the VAT man, so your company gets £80. Out of that £80, you reimburse the employee £100, which leaves your company £20 out of pocket.

That's not a sustainable business model - as tractor says, you need to issue a VAT only invoice to rectify the problem, or take the 20% hit.


(This assumes you aren't on FRS. If you are then the figures are different but the concept is the same - your company is out of pocket by x%)

[Clare@InTouch]

Thanks folks for clarifying this. Looks like the invoice issuance is the right process to get any payment into the company accounts.

I did not add VAT on the invoice but losing a bit of VAT savings is not my concern as long as we are just following the right process.

I will try to rationalise this with my accountant (local firm) so that he should be in agreement. I tried to search HMRC website so that I can give him some concrete reference but I guess their guidelines don't go into this sort of procedural aspect on the company side.

Have a read of this:

HM Revenue & Customs: Costs passed on to clients - disbursements - and VAT

Any costs that your business incurs itself in the course of supplying goods or services to customers are not disbursements for VAT purposes. It's you, and not your customer, who purchases the goods or services, which are supplied to and used by your business.
It's up to you whether or not you itemise costs like these on your invoices. If you do show them separately when you invoice your customers then they're known as 'recharges', and not disbursements, for VAT. You'll have to charge VAT on them whether you paid any VAT or not.

[tractor]

..

Thanks folks for clarifying this. Looks like the invoice issuance is the right process to get any payment into the company accounts.

I did not add VAT on the invoice but losing a bit of VAT savings is not my concern as long as we are just following the right process.

I will try to rationalise this with my accountant (local firm) so that he should be in agreement. I tried to search HMRC website so that I can give him some concrete reference but I guess their guidelines don't go into this sort of procedural aspect on the company side.

To rectify this, you should issue a VAT only invoice to the client and account for it on your next VAT return (the rules state that 'as soon as the error becomes apaprent' or similar).

There is a VAT notice on HMRC website that deals with this (both the specific error and how to rectify it) but I can't remember so you'll have to dig deeper there I guess.

[dagenheis]

Thanks folks for clarifying this. Looks like the invoice issuance is the right process to get any payment into the company accounts.

I did not add VAT on the invoice but losing a bit of VAT savings is not my concern as long as we are just following the right process.

I will try to rationalise this with my accountant (local firm) so that he should be in agreement. I tried to search HMRC website so that I can give him some concrete reference but I guess their guidelines don't go into this sort of procedural aspect on the company side.

[craig1]

An expense form would be an indication of employee-like behaviour in my view, and not something I'd recommend.

Issue an invoice to the Agency as you would for service rendered, adding VAT as normal. You then receive the payment for the invoice and it is indeed taxable income. You add the expenses themselves into your company accounts, which count as allowable expenses. Net effect to you - nothing (except maybe a slight disadvantage if you're on flat rate VAT).

There are some agencies out there (the bigger the agency, the bigger the culprit, in my experience!) that simply refuse to pay expenses in any way other than by their expense sheet.

It's a lesson I've learned by heart now and I make sure that my contract (or the assignment) says that expenses will be billed as a separate invoice from me. I'll complete their expenses sheet and provide reasonable receipts (copies, not originals, and marked as such) but I'll pin it to my invoice then add VAT on top of it. Even then, I know I'll have a fight on my hands to get that VAT from all bar the most contractor-savvy agencies.

[ASB]

Issue an invoice to the Agency as you would for service rendered, adding VAT as normal. You then receive the payment for the invoice and it is indeed taxable income. You add the expenses themselves into your company accounts, which count as allowable expenses.

Quite, there seems to be some thought that expenses are in some way "special" rather than just being taxable income. Exactly as you have described it also happens on the personal side. So the entire trail becomes:-

Invoice A for expenses. Income goes up by A.
Claim B for expenses. Income goes down by B.

Thus A - B is chargeable to CT. More often than not A and B are equal but its not necessarily the case (e.g. a large corporate I worked for would charge out expenses based on what it had agreed with its clients. This bore little or no resemblance to the underlying expense claims from its employees.

On the personal side (ignoring dispensations)

Taxable income increased by expenses claimed (likely to be B but not necessarily so).
Claim of job related expenses of B, restoring the status quo.

There is no reason why any of the amounts actually have to be equal. The only thing of significant effectively being that what the individual claims as job related should be allowable under the relevant rules.

An example of where things can become different is that said corporate allowed me to expense a flat rate of £18 for dinner if I was working or travelling after 8pm.

The final result was that for me personally this was taxable income of £18 to me of the amount in excess of what I had spent. (Or taxable income of £18 if I wasn't travelling but just decided to claim it because I got home after 8 which was within their policy rules)

[Clare@InTouch]

An expense form would be an indication of employee-like behaviour in my view, and not something I'd recommend.

Issue an invoice to the Agency as you would for service rendered, adding VAT as normal. You then receive the payment for the invoice and it is indeed taxable income. You add the expenses themselves into your company accounts, which count as allowable expenses. Net effect to you - nothing (except maybe a slight disadvantage if you're on flat rate VAT).

[northernladuk]

Who is your accountant? Is he one of the big contractor friendly ones or a small local guy?

[TheFaQQer]

You should invoice the client from your company for the expenses plus VAT.

Then account for that as income to the company.

Treat your personal expense claim from your company as an entirely different matter.