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.

HMRC has announced that it will be launching a campaign to target businesses that are trading above the VAT threshold but have not yet registered for VAT.  The crackdown is intended to take place later this summer but we suggest that businesses check their turnover levels sooner rather than later.

At present, the VAT threshold is £73,000 turnover on a rolling annual basis, meaning the last 12 months. It also applies if turnover is expected to exceed the threshold in the next 30 days.

We find that it is the “rolling basis” that can catch out businesses, especially when turnover is growing quickly.  Too often business people only review their 12 month results at the end of their financial year which could be too late as the VAT threshold could already have been exceeded.  We strongly recommend that any business people who see their turnover growing swiftly should consider registering for VAT before they reach the threshold so that they are not in contravention of the rules and so avoid being liable to penalties. Registering for VAT does mean recovery of VAT incurred on costs, so it is not all bad news.

We recommend that our clients start to use an accounting software product (such as Xero) for record keeping so that rolling 12 month turnover figures can be easily monitored to determine when they exceed the VAT registration threshold.

Have you been in the position of approaching the VAT threshold and perhaps exceeding it?  What was your experience?