Handling VAT on expenses is a complex area and you should seek professional advice where necessary.
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Anne Holt
Partner
RSM Tax and Accounting Limited
Abottsgate Blenheim House
Hollow RoadNewmarket Road
Bury St Edmunds
IP32 7FAIP33 3SB
Telephone: 01284 763311
Email: anne.holt@rsmuk.co.uk
Contractor Payments & Self Bill Invoices
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| Worker Type | Template Configured for VAT Entry | Details of the Payment |
|---|---|---|
| PAYE | YES - VAT component entered as part of the claim | A payment of £120 is made |
| Contractor, not VAT registered | NO - The contractor claims the gross element and does not separate out the VAT component | The self-bill invoice would show the gross value of the expense. No VAT is added to the invoice.
This is shown in the image above. It can seen that the item line includes VAT and is shown as net of £120. No VAT has been added to the invoice. The contractor receives £120 covering the cost that was paid for the hotel. |
| Contractor, VAT registered | NO - Only the net value of the expense is entered | The self-bill invoice would list the expense without VAT. VAT is added to the whole invoice.
This is shown in the image above. It can be seen that item line for the hotel bill is £100.00 net. VAT at 20% has been added to the whole invoice resulting in a gross value of £120. |
Client Invoices
RSM InTime also offers you two options for how VAT is calculated for expense items when client invoices are raised:
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The gross method, which is the default, would invoice each expense item using the gross value entered. In this example the expenses for the Non-VAT registered contractor and the PAYE contractor have a net value of £120. The expense for the VAT registered contractor is £100.
The net value for this infor is £340 and £68 VAT (20%) has been added to give a gross value of £408.
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- An expense for tools of £25 has been submitted. The template was configured for Gross Value entry using a 20% tax rate. InTime RSM InTime has calculated the VAT automatically
- An expense for books of £10 has been submitted. The templated was configured for Gross Value entry using a 0% tax rate. Therefore the VAT has been automatically set to £0.
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It can be seen that the total of both expenses has been used to create the next figure on the invoice. The client is configured on a 20% tax rate and therefore £7.00 of VAT has been added.
Configuring disbursement payments/expenses
You may make disbursement payments within RSM InTime which should be excluded from VAT calculations when invoicing regardless of the contractor/client VAT settings. Please refer to the HMRC website (HMRC guidance) to determine when payments can be treated as a disbursement. In this situation you would need to set the HMRC category to Disbursement against the expense type under System Configuration > Expense Types. This will result in 0% VAT being applied to any disbursement payments/expenses whilst any other items on the same invoice will use the VAT code/rate set against the client.