I would be really grateful for some advice as I am going round in circles. A limited company's contract with another second limited company allows for the direct pass through of certain expenses mainly travel and the like.
The costs are paid by the employee (also a director) of the first limited company.
I am considering which is the most correct method of recovery, one that an accountant at a previous firm authorised for sub-contractors, is for the employee (director) to submit a direct expense claim to the second limited company and for them to be reimbursed directly bypassing the primary limited company and forwarding all receipts to allow the second limited company to claim back any VAT and claim as an allowable expense. This is the method I am comfortable with, but is it correct?
The other way could be for the primary limited company to invoice the second limited company, but they are VAT registered (both) which introduces VAT on items (train, air fares) where non exists. Obviously this option would increase turnover and affect expenses for the first limited company.
I am not sure if I have explained it very well, any advice would be very gratefully received.
I'm very surprised to hear an accountant has authorised the system you describe as it isn't correct.
The employee of company A has no contract with company B and so no basis on which to charge them. The travel costs are part of the the service company A is providing for company B and need to be invoiced as such, with VAT on that amount as well. VAT is added on to staff time and all sorts of other things on which no VAT is paid, this isn't any different. VAT isn't charged on a disbursement, but these expenses aren't disbursements. So turnover and expenses will be increased.
Thank you for your reply that is really helpful. The accountant (external and chartered) did indeed sanction it/instruct that it was used in a largish limited company. I no longer work there (which is besides the point), otherwise I would probably have just carried on without questioning it.
