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New Preview Feature - Expenses on cash accounting VAT scheme

News posted by Tommy Chung 1 year ago

After extensive review, we have updated the way VAT on employee expenses is processed on a cash accounting VAT scheme.

Currently, the employee expense (EXP) is included on the return based on the date of the expense. However, with this new feature enabled, the VAT is processed is as follows:

Expense Claim method

When you create a new employee expense (EXP) you will be able to select a VAT rate for each line of the expense. The VAT treatment will be locked to out of scope - this will prevent the employee expense from being included on a VAT return.

As soon as the expense is approved the system will generate an expense claim form (PUR). This expense claim form will include the total VAT liability of the expense. This expense claim form will be included on the VAT return based on the payment date.

Adhoc payments method

This will remain as it currently is.

Approving an expense on the Adhoc payments method does not generate an expense claim form. You will need to either create a bill or a money out transaction for the payment back to the employee.

Preview

We are adding this new process in our preview section, which can be accessed in the toolbar at the top of the menu. This will be available to enable/disable with the Preview menu.

2 Replies

Hi Tommy

Can you give us a link to the legislation or HMRC manual/notice that indicates that you can only reclaim the VAT based on the date you physically pay the employee? The following has always been my understanding.

When I spend money on business expenses, I do so on behalf of my employer, ie as an agent rather than a separate supplier. Even if made out in my name, the evidence for the company's VAT claim is the actual supplier's invoice and so, when this is paid, the expense and it's VAT can be properly entered on the VAT return. In other words, when I pay it from my own funds, it's paid and so the VAT can be reclaimed.

Assuming you are able to show that the revised treatment is correct, can you explain in more detail how I reclaim the VAT using the Adhoc method?

I may be missing something obvious but, following what you say above, if I claim £120 as a business expense using the adhoc method, it creates a creditor in the "Paul's expenses" account code and debits £120 to expenses. Several months later I pay myself back and so create a money out transaction for £120 to Paul's expenses but if I reclaim £20 VAT on that, only £100 goes to my expense account, meaning I am still owed £20, and the expense account code is overstated by £20.

Similarly if, as you suggest, I created a new bill to myself. It's just transferring the debt from my expenses account to trade creditors but, again, if I claim back £20 VAT on the bill, only £100 gets debited to my expenses and the expense account code is overstated by £20.

Finally, how do you reconcile this new treatment to the fact that I can, and often do, record the supplier's bill as normal in trade creditors, ie outside the "Expenses" feature, then pay it off via my director's loan account? CB will put the VAT on the return based on the date of payment from the director's loan account, even if I personally don't receive payment.

Are you telling me I need to enter the bill as out of scope then somehow enter another entry somehow to reclaim the VAT when I pay back the director's loan, having to decide how much, if any, of my £2,000 drawing applies to the £120 expense I put through 6 months ago?

Hi Paul,

Sorry for the delay. We are still making changes based on feedback, thank you for yours! I think we were a bit too pushy on the upload date so we have removed that for now. The problem was originally raised by an accountant using Clear Books. We checked this over with HMRC on multiple occasions who have confirmed the findings of the accountant. The only documentation to back this up is shown below, though, it is rather vague.

https://www.gov.uk/government/publications/vat-notice-731-cash-accounting/vat-notice-731-cash-accounting

However, we have decided to only make this change available on Expense claim forms - the Adhoc method will remain as it is. We will add a message to make users aware if they select the Adhoc method. We will not be making any changes to bills paid by DLAs for the foreseeable future.

Again, thank you very much for your input! We value all constructive feedback and aim to deliver the best possible outcome!

Tommy

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