Expenses during work for another company - Classed as sales?

[red50]

Hi All,

Require some advice, i'm contracting daily to another company who have required me to travel with Hotel/food expenses.

They have been happy to cover the expenses as part of the job and pay me the amount of expenses incurred. (without an invoice)

Now i have done a year of this my accountant has mentioned that i now need to class these payments as sales and have to pay 20% on approx 5k worth of expenses. I'm flat vat registered

Is this right enough? I'm paying VAT at point of sale.

Thanks

 

[numbersrule]

If you were to Invoice for the expenses you would be able to claim back the Input VAT you originally incurred assuming all Invoiced expenses were solely for business use.
You should Invoice the Cost net of VAT and then add your 20% Output VAT irrespective of whether or not you were charged VAT on the original expense.
Then your Client would have Invoices from you that would be consistent with what may have already been their claim back of their Input VAT which may have been based on the Receipts you would have provided previously.
This will ensure that the VAT treatment does not cost you a penny.

 

[DWS]

Do you mean you are on Flat Rate Scheme for VAT?
Your accountant is correct in that you need to account for VAT on the expenses, you need to either reissue the invoices to include the expenses and charge VAT on the total or if that is not possible then you will need to account for VAT on the money you received for labour and expenses.
If you are on the FRS then you can not claim for any input tax incurred on the expenses.

 

[Ziggy2024]

Do you mean you are on Flat Rate Scheme for VAT?
Your accountant is correct in that you need to account for VAT on the expenses, you need to either reissue the invoices to include the expenses and charge VAT on the total or if that is not possible then you will need to account for VAT on the money you received for labour and expenses.
If you are on the FRS then you can not claim for any input tax incurred on the expenses.

This. Your accountant is correct, unfortunate that the advice came so late in the day.

 

[UK Contractor Accountant]

They have been happy to cover the expenses as part of the job and pay me the amount of expenses incurred. (without an invoice)

As like an "employee"

IR35 issues spring to mind here.

 

[Bobbo]

If you were to Invoice for the expenses you would be able to claim back the Input VAT you originally incurred assuming all Invoiced expenses were solely for business use.
You should Invoice the Cost net of VAT and then add your 20% Output VAT irrespective of whether or not you were charged VAT on the original expense.
Then your Client would have Invoices from you that would be consistent with what may have already been their claim back of their Input VAT which may have been based on the Receipts you would have provided previously.
This will ensure that the VAT treatment does not cost you a penny.

Except OP said "I'm flat vat registered" so they can't claim back the input VAT

 

[MyAccountantOnline]

Hi All,

Require some advice, i'm contracting daily to another company who have required me to travel with Hotel/food expenses.

They have been happy to cover the expenses as part of the job and pay me the amount of expenses incurred. (without an invoice)

Now i have done a year of this my accountant has mentioned that i now need to class these payments as sales and have to pay 20% on approx 5k worth of expenses. I'm flat vat registered

Is this right enough? I'm paying VAT at point of sale.

Thanks

Yes your accountant is correct.

How do you think the income should be treated?

 

[MyAccountantOnline]

@red50 are you regulalry checking that using the VAT Flat rate scheme is beneficial to you?

 

[Baines Watson]

Hi All,

Require some advice, i'm contracting daily to another company who have required me to travel with Hotel/food expenses.

They have been happy to cover the expenses as part of the job and pay me the amount of expenses incurred. (without an invoice)

Now i have done a year of this my accountant has mentioned that i now need to class these payments as sales and have to pay 20% on approx 5k worth of expenses. I'm flat vat registered

Is this right enough? I'm paying VAT at point of sale.

Thanks

Your accountant is correct in this situation. Since you're contracting with another company and they've been reimbursing you for hotel and food expenses, those reimbursements are considered recharged expenses rather than disbursements. This means they should be treated as part of your sales for VAT purposes.

Here’s why:

1. Recharged Expenses: When you incur expenses like travel, accommodation, or meals as part of providing your services, and then get reimbursed by the client, these expenses are seen as part of the cost of delivering your service. Since you’re VAT-registered, you’re required to charge VAT on the full amount you invoice, including these recharged expenses.
2. Flat Rate Scheme: Since you're on the Flat Rate VAT Scheme, you pay a fixed percentage of your gross turnover (which includes these reimbursed expenses) as VAT to HMRC. The downside of the flat rate scheme is that you can't reclaim VAT on most of your purchases, but you must include all income, including reimbursed expenses, when calculating your flat rate VAT payment.

So, in your case, the £5,000 worth of expenses needs to be treated as part of your sales, and you'll have to pay VAT on that amount under your flat rate scheme. This is why your accountant has advised that you owe 20% VAT on those expenses.

Key Takeaways:​

• Reimbursed expenses (like travel and accommodation) are part of your sales and should be included in your VAT calculations.
• Under the Flat Rate Scheme, all income, including these expenses, must be accounted for when calculating your VAT liability.

If this approach feels burdensome, you might want to review your VAT scheme or discuss alternative arrangements with your accountant to ensure you’re handling your VAT obligations in the most efficient way possible.