VAT - 03.07.2018

Accounting for VAT on recharged expenses

One area HMRC inspections often focus on is VAT not being correctly charged on recharged expenses. The general rule is that even if your company has not paid VAT on the expense itself, it will still have to charge VAT on it when recharged (assuming you’re making VATable supplies).

Tip 1. When separately itemising mileage expenses, train and air travel, postage or purchases from non-VAT registered businesses on your sales invoices, ensure that VAT is being charged on them. Tip 2. Remember to deduct the VAT that you have reclaimed on expenses before charging VAT on them to avoid the client being charged VAT on top of the VAT- inclusive cost. For example, an employee provides you with a hotel bill of £180 for a visit to a client and the invoice states that this includes VAT but doesn’t show the VAT amount. So, it would be incorrect to recharge the full £180 + VAT. The correct treatment is to: (1) calculate the VAT on the hotel bill which is £180/6 = £30 VAT to reclaim; and (2) recharge £150 + VAT = £180 to the client. Tip 3. If the recharged expense is a component cost of a zero-rated supply, then the VAT charged on the expense can also be zero-rated.