Bear with me, because while this may seen food and drink for most, I've not found absolute clarity to be comfortable. I will give a hypothetical example. The situation is an expense by Employee A of Company A. By contract, Company A invoices company B for these expenses. Now, Employee A comes to me with his personal reimbursement form, whilst simultaneously I invoice the customer.
He comes with a single receipt:
£100 and £20 VAT for a hotel bill (he therefore paid £120)
Now, I book his expense internally just as above, (just to reimburse him personally), which presumably means that I can claim the £20 on my quarterly VAT return
Now, time to invoice my customer:
Scenario 1:
SOW xxx, Expenses £120
VAT @ 20%£24
Total£144
Scenario 2:
SOW xxx, Expenses, £100
VAT @ 20%£20
Total£120
What scenario is correct, and who can claim what at the end of the VAT reporting period?
Either! It's what you agree with your customer to recharge them:
scenario 2 - this is simply recharging them the COST (i.e. £100) which you incurred
scenario 1 - although the figure comes back to the gross amount incurred by your employee, you could argue with your customer that you incur a cost of processing the accommodation, so you are charging them, say, an administration fee.
Or you could charge them £150 + VAT, making a profit on it.
Or you could charge them £80 + VAT, making a loss.
It probably comes down to what they are being charged for the service they receive.
