Handling VAT on expenses is a complex area and you should seek professional advice where necessary.
The following two sections shown how you could configure expense templates for your contractors and the options available for calculating VAT on client invoices.
We cannot provide advice as to which option may be appropriate for your business. However, should you require VAT/tax assistance, training or a help line service for your business, please contact
Anne Holt
Partner
RSM Tax and Accounting Limited
Abottsgate House
Hollow Road
Bury St Edmunds
IP32 7FA
Telephone: 01284 763311
Email: anne.holt@rsmuk.co.uk
Contractor Payments & Self Bill Invoices
It is likely that you would need to treat VAT differently for
- PAYE contractors
- Non-VAT registered contractors
- VAT registered contractors
Whether VAT is entered is controlled by the configuration of the Expense Template. You select which Expense Template applies on the Placement.
The table below shows a typical configuration with an example of a claim for £120 which includes £20 VAT.
| 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
InTime also offers you two options for how VAT is calculated for expense items when client invoices are raised:
- Based on Gross Value. VAT is added onto the gross value of the expense. This would be relevant where the VAT cannot be reclaimed by the agency or contractor
- Based on Net Value. VAT is added onto the net value of the expense. This would be relevant where the VAT can be reclaimed by the agency or contractor.
In the examples below two hotel bill examples are being invoiced. One was entered with VAT (either by the PAYE contractor or the non VAT registered limited contractor) and the other was entered as net (by the VAT registered contractor).
Gross Method
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.
Net Method
The net method would invoice each expense item using the net value entered. In this example the expense for the Non-VAT registered contractor has a net value of £120. The expenses for the VAT registered contractor and the PAYE contractor are for £100.
The total net value for this invoice is £320 and £64 VAT (20%) has been added to give a gross value of £384.
This can be set via the Administration -> System Configuration menu as pictured below:
Configuring Mileage Claims
Clients typically wish to allow contractors to claim a certain amount per mile. Often there is a higher rate which can be claimed up to a certain number of miles and then a lower rate for miles above that rate.
In order to achieve this you would need two different expense types: one for the higher rate and one for the lower rate.
In the first expense type the HMRC category must be set to "Mileage Payments" as shown below.
In the second expense type the HMRC category should be set to "Not Set" as shown below
In a similar way, the Expense Template must have two entries. One for the higher rate mileage and one for the lower rate as shown below.
It can be seen that that the higher rate mileage type has been selected for the first entry with a rate of 45p per mile. The second entry pays a lower value of 12p per mile.
You should then contact the support team to request that the higher rate mileage feature is enabled along with the number of miles that you wish to be claimable each year. If you wish to change this value in any subsequent year then you should contact support to have this value changed.
Once a higher rate mileage limit is set, the system holds the cumulative mileage for the worker for the year. In the image below the contractor has tried to claim 300 miles on the higher mileage rate but only has 190 unclaimed miles at this rate. A warning box has been displayed showing that only 190 miles can be claimed at the higher rate and the remaining 110 must be put against another mileage category. The number of miles entered in the field will be automatically reduced to 190 once the warning message is closed.
Configuring Expenses for PAYE Workers
For when PAYE contractors claim expenses you would request that the contractor enters the net and VAT amounts for each expense. Some expenses may have a VAT element whereas others may not attract VAT. You would normally set up two templates to allow for these different types of expense.
In the example below you can see that the expense template contains two entries:
- VAT Expense. It can be seen that the tax-rate is Standard (which is configured as 20% in this example) and the entry method is gross
- Non-VAT Expense. This type of expense is set to T0 (which is configured as 0% in this example) and the entry method is gross
When the contractors enters expenses the screen will look like the image below.
Here it can be seen that
- An expense for tools of £25 has been submitted. The template was configured for Gross Value entry using a 20% tax rate. 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.
The image below shows how these items would look on a client invoice. In this instance the client is set to a 20% tax rate.
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 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.