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Sam
Sam, Accountant
Category: Tax
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I have been advised that when we are invoiced

Resolved Question:

Hi
I have been advised that when we are invoiced for travel expenses by someone who is self employed, they should keep the original receipt to show proof that it was a business expense and not income, should they be audited. I just wondered what needs to happen if the self employed person is submitting an expense that includes VAT (such as car hire or subsistence)... wouldn't we need the original vat receipt to be able to claim the vat back (we are VAT registered)...?
Thank you!
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.
Hi
Thanks for your question
Yes thats right they need to have the original receipts to compile their own self assessment accounts (or corporation tax)
In the instance where you might have a VAT charge - this would have been included in the VAT invoice that the self employed individual has provided you with for their payment - so you would have the evidence of the VAT passed on (if they too were VAT registered.
Unless you pay for the travel costs directly for the self employed individual would you
1) need the receipt and
2) need it for VAT purposes
As the invoice supplied to you should contain all that you need for tax and VAT purposes
However might I advise that if you are providing them travel arrangements which you pay for (and in this instance then the VAT receipt does need to be yours - as you have incurred the cost directly - it then raises the issue as to whether they should in fact be an employee -
Thanks
Sam
Customer: replied 1 year ago.

Hi Sam!

Thank you. We're not paying for any of it directly, they are all expenses which the self employed person is claiming back from us. The self employed person is not VAT registered though so for example, a trainer has gone to do a job for us in Devon (we are based in London)... she then invoices us £200 for her work, £90 for her flight and £50 for the car she had to hire in Devon. So the invoice she sends us totals £340... what does she need to send us with the invoice...? Again she is not vat registered.

Thanks again.

Expert:  Sam replied 1 year ago.
Hi
Thanks for your response
Then as you are not paying for it directly you will just suffer any VAT that you have been invoiced for through the self employed charges.
So for the work done, and travel and any other expenses then if they are VAT registered then they charge you VAT on the overall bill, and its THIS VAT you can claim for - which you your receipt in the form of their invoice.
If they are NOT VAT registered then they will invoice you without any VAT charges.
So in the example you give,she charges you £340 in total - and that's what you pay (and this is exclusive of VAT and she is NOT VAT registered) and as you have suffered NIL VAT you will show this on your VAT return as 0% rate - and gross and net will be £340
Any VAT this individual has suffered on the payment for flights and car hire is HERS/HIS to bear and they cannot reclaim it as not VAT registered.
If they had been VAT registered then you would have had the £200 work done - then the net figure of car hire and flight - which added together would then be charged 20% VAT which would have then given you an net invoice of £316 - grossed up with 20% VAT of £379.20 (so VAT suffered of £63.20)
You then from the invoice or an actual recipt once you had paid this) would have you evidence of
1) The VAT to reclaim
2) By virtue of both the charges passed on for the car hire and flight - AND the VAT on the fee charged.
Let me know if you need any further assistance with this exploitation
Thanks
Sam
Customer: replied 1 year ago.

Exploitation?

Lovely, thank you so just to summarise... so our self employed chaps should be sending us an invoice with their expenses listed but without physical receipts as there's nothing we need the receipts for (as the expenses do not then become ours to reclaim the vat on), and our employees always do need to give us receipts with their expenses because they are our expenses and we can claim back the vat....?

Expert:  Sam replied 1 year ago.
Hi
Thanks for your response
Well you might wish to see copies of their receipts for all expenses (to quantify the costs claimed!) but you do not need the originals as you claim the VAT charged on the invoice (from VAT registered business costs you incur) not the travel costs and expenses themselves
And yes re your employees as they are submitting the receipts to you (as they have either paid and are being reimbursed - when you also then have to report these costs on a P11d but as business costs then the employee can make a S336 claim stating that the costs were incurred wholly and exclusively in the performance of their duties) ) OR you have paid and they merely are passing on the receipt/travel tickets etc
But then yes you claim the VAT suffered as a direct expense to your business
Thanks
Sam
Customer: replied 1 year ago.

Thank you... im so sorry, one last question just to follow it to the end of our process...

Once I enter the self employed persons invoice on the system (putting the vat classification as 'not registered' for the work done portion of the total, and 'non deductable'(?) for the expenses portion)... if we then want to recharge our client for the car hire expense, I would need to manually extract the expense net vat from the self employed person's invoice to charge on (and then apply vat as we are vat registered)...?

(example as before - an expense from a non vat registered self employee of car hire of £50 including vat - we cannot claim the vat so it goes on our system as £50 VAT non deductable, but then if I want to charge our client I would charge £41.67 plus vat...?)

Thank you very much once again!

Expert:  Sam replied 1 year ago.
Hi
Thank you for your further question
Why would you enter the expenses as non deductible? You claim these as these were an additional amount you suffered along with the fee for the work undertaken as not registered (with the amount as charged) so you are credited (through the accounts) for the whole cost to you as a business - and as you are passing the charge on its even more essential you get credit from the amount relevant to the expenses element
So then you have an end user - YOUR client )for whom you engaged the self employed individual to carry out the work for you?? which still gives me cause for concern that they are not an employee as you instruct this self employed individual where to go, when and even cover their travel costs ....I do feel you need to examine this a little closer as this seems to breach so many employment status rules)
You cannot then pass the charge on to your client with VAT as you have suffered none. This is then a disbursement
Link here that advises in detail when this arises and how to manage them
https://www.gov.uk/vat-costs-or-disbursements-passed-to-customers
It may well be that you do not itemise the full breakdown of how you fee arose in which instance you would have a total (including your fee and the costs passed onto you) and then charge VAT on the whole amount.
But did the client know they would have to cover the cost of the third party self employed individuals costs to travel
And if the self employed individual should be an employee - then you would charge this as a recharge nor a disbursement -
I think the first pointer needs to be whether you are engage this self employed individual appropriately or would they be an employee.
Thanks
Sam
Customer: replied 1 year ago.

Hi

I was going to be entering the car hire expense as 'vat non deductable' as we can't claim the vat on it...? Maybe I've misunderstood that classification. So the full amount of £50 from her invoice is entered and then classed as 'vat non deductable' in the vat column (as it's not exempt, zero rated or standard...or technically is standard, but not reclaimable and putting standard would mean that it would show up for us to reclaim)

I apologise if im not understanding you or not explaining correctly, im just data entry really but trying to make sure that the system I've taken over is correct as the business grows... I appreciate your patience!

Im fairly sure they are correct to be self employed... they work for other companies also doing the same thing and arrange their own travel and materials... I believe someone senior to me here has discussed it previously with HMRC but I will bring it to their attention.

Thank you.

Expert:  Sam replied 1 year ago.
Hi
Thanks for your response
You aren't claiming VAT on it, as the charge has arisen from a non registered VAT company - and they are NOT passing that charge on - I do not use software to create my clients VAT returns but if I did I would have treated this as not registered and placed the whole figure as one -
But I do understand your logic that the self employed individual may not be VAT registered but it is a taxable supply - but the VAT office have always advised that when the charge (even of a taxable supply in its own right) is from a non registered business that you should treat it as exempt / outside the scope of VAT.
It might be an idea to clarify this with HMRC VAT - so you get this right - as I am a non software user and therefore all my entries (via excel spreadsheets) are where I place them!!
VAT HMRC contact details
Telephone: 0300(###) ###-####
And its not enough that this individual supplies these services to other businesses - its about specifically their contact of engagement for services with you that affects your business - its just seeming less and less like self employment (and you can provide the same services to many - and just one of them could be employment due to the way they are provided.
Just for info - if you have the time/inclination (as you advise this is a more senior arrangement that this was decided as appropriate to proceed.
Link as to what determines employment or self employment
https://www.gov.uk/government/collections/employed-or-self-employed
Thanks
Sam
Thanks
Sam
Customer: replied 1 year ago.

Perfect, that's what I was unsure on but that's helped me clarify what it is I was asking... that it does have VAT in it but the VAT is irrelevant to us. 'Not registered' makes sense... I will look into that, thanks for helping me clarify what I was asking!

Thank you, ***** ***** a look into the link you have sent and will mention it to the appropriate individuals...

Thanks again... please feel free to send a blank reply and I promise I will rate without further questions! ; )

Expert:  Sam replied 1 year ago.
Hi
Thanks for your response and I am glad to have been of assistance (I never mind how many questions are asked, as long as you are able to quantify the position yourself - which is what this site is all about)
Thanks
Sam
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