This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

VAT reclaim on employees purchases

MaxS
Posts: 15
Joined: Wed Aug 06, 2008 3:28 pm

Postby MaxS » Tue Apr 18, 2006 2:42 am

Assume that a company employee has expenses refunded at long intervals (perhaps once a year) to save issuing (e.g.) many small cheques. Say he/she buys something VATable at standard rate, a meal say. The company (which handles VAT on an accruals basis) then has a General Journal transaction input with (presumably...) a debit to a 'subsistance expenses' account and a credit to a 'company owes employees' account, with the VAT broken out into the VAT Control account. Both sides of the transaction appear in the detail underlying the VAT 100 and cancel each other out. Only when the employee is actually paid does the VAT (and ex-VAT purchase amount) reappear within the VAT 100.
Three questions - if anyone could enlighten me pls:
a. Is this the correct accounting treatment, or am I (or my Quickbooks - but most likely me) up a gum tree?
b. Since the payment may be in a later VAT period than the invoice date, the invoice is not being included in the VAT 100 appropriate to its date. IS this right?
c. The employee is naturally not VAT registered. Should the credit to the 'company owes employees' account be 'net plus VAT' or 'gross'?

Apologies in advance for naive questions!

jpcentral
Posts: 924
Joined: Wed Aug 06, 2008 3:28 pm
Location: Loughborough
Contact:

Postby jpcentral » Tue Apr 18, 2006 5:07 am

I think you might be looking at this the wrong way. The employee presents an expenses claim which includes VAT - let us assume that the amount involved is £117.50 which includes £100 VAT.

The entries are Db - Expense account - £100, Db - VAT liability £17.50, Cr - 'Owes Employee Acccount' - £117.50.

The VAT only goes on one side of the transaction and therefore the VAT is claimed in the quarter in which the expense claim was raised.

You could set up the employee expense account as a Supplier eg "Joe Bloggs - expenses". If you then enter the expense claim as a bill, everything should become much clearer.

John Perry
Central Business Services
Loughborough
www.centralbusiness.co.uk
John Perry
Central Business Services
Loughborough
http://www.centralbusiness.co.uk

MaxS
Posts: 15
Joined: Wed Aug 06, 2008 3:28 pm

Postby MaxS » Tue Apr 18, 2006 1:56 pm

Thanks John. The way you suggest is actually the way I have been doing it. But since the £117.50 (in your example) in the ‘owes employees’ account appears as a negative purchase item in the detail behind the VAT 100, it more than offsets the £100 purchase item. I then had the odd situation this last VAT period of being automatically warned by the HMRC online VAT100 system that my purchases total was too little for the VAT amount being reclaimed !

jpcentral
Posts: 924
Joined: Wed Aug 06, 2008 3:28 pm
Location: Loughborough
Contact:

Postby jpcentral » Tue Apr 18, 2006 10:55 pm

Sounds as if you may have your "Owes Employee Account" set up as an Expense account. It should be a Current Liability and it shouldn't then appear as part of the VAT 100 calculation.

John Perry
Central Business Services
Loughborough
www.centralbusiness.co.uk
John Perry
Central Business Services
Loughborough
http://www.centralbusiness.co.uk

MaxS
Posts: 15
Joined: Wed Aug 06, 2008 3:28 pm

Postby MaxS » Wed Apr 19, 2006 6:36 am

Of course!!
Thanks John.


Return to “Tax Investigations and Enquiries”