Charging Vat on travel expenses

[cedric09]

As a client of a housesitting company i have a query about their charges - hope someone can clarify.

Housesitter is employed by Vat registered company. They travel to visit for a preliminary meet and greet and I give the employee a cheque for their travel expenses in their name - I am not charged vat. At the time they arrive for the job/sit I pay the sitter directly for a) travel expenses to my house and b) £7 per day for food allowance once they arrive for the sit. I have received an invoice from the company and the charge for the sit is being charged Vat (fair enough they are vat registered and I am paying the money to them) but then they have also added on a charge for the Vat on the travel and food allowance despite the money going directly to the employee and not to them.

Is this correct?

 

[Mitchells Bristol]

Hello there

I think this is correct.

I think the fact that you are passing a cheque to the employee of the business is slightly confusing the issue. Presumably they take this cheque back to their employer and it is treated as a payment on account toward the overall invoice. As your contract is with the employing entity and not the employees, one would assume that this indeed the case and the employees then submit an expense claim to recover their out-of-pocket expenses from their employer.

Unfortunately the VAT registered business has to charge VAT on these costs.

Hope this helps.

 

[cedric09]

Thank you for your reply.

Yes what confuses me is the fact that the cheque for travel expense and food is made out to the employee or cash is given to the employee by me so I don't think that money is ever seen by the actual company yet they are invoicing me for the VAT element.

Does the money not need to go to the company at some point for it to be charging vat on it?

 

[Mitchells Bristol]

It certainly is an unusual set of circumstances.

The employing company is supplying you with s service, for which you are paying for:

House-sitting (core service)
Travel costs
Meal allowance

The employing company is correct to issue an invoice for all of the above, including VAT on all elements. The company should then declare the total of all three of the above as sales.

The invoice should then deduct "amounts already paid" which relates to the cash or cheques given to the employees. Presumably the company just makes a paper contra entry on their records showing the travel costs as income, but immediately deducted as a staff expense reimbursement.

Whether they are accounting for tax correctly on the "payments" that they are hypothetically making to their employees, and completing the necessary filing requirements is anyone's guess.

However, from your perspective, I think it is correct that you are paying VAT on the travel and meal allowance, even though it is paid to the employee. Personally, I would insist on writing a cheque to the company for the meal and travel so that there could be no future dispute about whether the amounts have been paid.

 

[cedric09]

Thank you for helping to clarify that. It was a bit confusing!