One question I have been asked by clients a few times recently  is how to account for VAT when invoicing their clients for travel expenses, for example when they are reimbursed for travelling to attend a meeting. Specifically, should my client add VAT to their invoice even when they are billing them for a non-VAT item like a rail fare?

Perhaps you’ve found yourself in this position?

The key question is whether you incurred the cost in the process of supplying your services to your client (like travel to a meeting) or whether the costs were incurred by you on behalf of the client (eg the cost of a meeting room booked by you but for a client). If it is a cost in supplying your services, then, as in the case of the recharge of the rail fare, it will be included as part of the calculation of VAT output tax on your services

The question of whether the cost you have incurred includes VAT only affects your recovery of input tax.  So you will not be able to recover any input on the rail fare cost incurred by you as none has been charged.

Provided your client is VAT registered the effect of charging VAT is neutral (ie no-one has to pay anything extra) as the VAT element should be recoverable by the client.

Have you had any issues with accounting for VAT when invoicing for travel costs?

On the occasions when you pay costs on behalf of your client, the VAT question can become quite complex.  I’ve found that clients sometimes struggle with it, so I’m planning to cover it in a future blog.  If you’ve had problems with the area of recharging VAT please let us know either by comment below or by email to twitter@cassons.co.uk  and we’ll try and address it in the blog.