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Post Info TOPIC: VAT on reimbursed expenses
woody88


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VAT on reimbursed expenses
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I am completing the year end accounts for an IT Contractor who creates 2 invoices per month for each contract he undertakes.

He creates one invoice for his days worked (Labour) at his agreed daily rate and a second invoice for his expenses associated to this work.

He recieves a seperate payment for each invoice around 30-60 days from the invoice date.

What is confusing me is that he charges VAT on his labour invoice but not on his reimbusered expenses invoice.

I thought that the reimbused expenses should also have VAT charged on it, or am I wrong.

Ben



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Robert Pearce


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Yes, VAT would normally be levied on recharged expenses.  The exception would be if they qualified as disbursements.



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Pearce & Co - Chartered Accountant and Chartered Tax Adviser 

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These comments are outline only and are not a substitute for specific professional advice.
MarkS


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Hi Ben

Yes as Robert says there should be VAT on recharged expenses.

If you think about it if he bought some materials for £100+VAT they would have cost him £120 but he would have claimed £20 VAT and have a cost of sale of £100.  If he then charged the materials at no gain or loss he would recharge these at £100.  If he didnt add VAT then he would be £20 up as this is what he has reclaimed from HMRC.  That is why VAT would be chargeable so the recharge of the materials on a no gain/no loss basis from a profit and loss account viewpoint is also VAT neutral ie £20 VAT to be paid over when recharged.

Regards

MarkS



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Mark Stewart CA

http://stewartaccounting.co.uk/

Providing accounting, bookkeeping, payroll and tax services to small and medium sized businesses across Central Scotland and beyond.
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