Vat on recharged expenses

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Vat on recharged expenses

Last updated on Tuesday, March 1, 2016

Written by Alex Cadman

Do the terms ‘rechargeable’ and ‘non-rechargeable’ expenses confuse you? We break down the differences of both to help you operate your limited company efficiently, and explain how these expenses can help you to maximise your take home pay further.

This post should help shed some light on accounting for rechargeable and non-rechargeable expenses. Contact us should you have any additional questions on claiming expenses through a limited company.

What is a ‘rechargeable expense’?

Rechargeable expenses are costs incurred during the course of your contract work that can be charged back to your agency or end client. This means that an agreement has been made between you and your agency or end client for you to be reimbursed for these expenses.

Which expenses qualify as rechargeable?

Your agency or end client could agree on rechargeable expenses for a number of costs, from Travel and Subsistence to business phone calls and more. As long as your agency or end client agrees the expense in advance, it can be recharged.

Keep in mind:

  • You must keep original copies of your expense receipts for five years, even if they are rechargeable, as the end client or HM Revenue & Customs may ask to see them
  • If your agency or end client asks to see expense receipts, make sure to send a copy of the original receipts and not the originals themselves

How am I reimbursed for a rechargeable expense?

To recharge an expense, record it on your service invoice to your agency or end client to be reimbursed along with payment for your contractor services. Alternatively, you may record the expense on a separate invoice, depending on your agent’s or end client’s preferences.

VAT on recharged expenses

Accounting for VAT on recharged expenses depends on whether your limited company is VAT registered and if there is VAT on the expense. If your company is VAT registered and the receipt has VAT, then the amount, not including VAT, should be added to the invoice. If there is no VAT on the receipt, enter the total amount.

If you are not VAT registered, enter the total amount of the receipt, irrespective of whether it contains a VAT number or not.

This covers your rechargeable expenses, but what about the additional out of pocket costs that you could incur? These are non-rechargeable expenses. Find out more below.

What is a ‘non-rechargeable expense’?

A non-rechargeable expense is a cost that you incur during your contract work that is not passed on to your agency or end client. Some of these expenses are tax deductible, which means they can be claimed through your limited company. Note that some non-rechargeable expenses are not tax-deductible.

Which expenses count as tax-deductible?

A few typical expense claims include, but are not limited to, the following:

  • Mileage for use of your own vehicle to and from your job site. Per tax year you may claim 45p per mile for the first 10,000 miles and 25p thereafter
  • Mobile telephone costs in the company name
  • Postage used during your contract work
  • Travel and Subsistence. Note that you will still be able to claim this expense through your limited company from 6th April if you operate outside IR35, whereas contractors working via umbrella companies will not

How do I claim tax-deductible expenses through my limited company?

If you incur an expense that is tax-deductible, your limited company can recoup a Corporation Tax saving on this expense. Corporation Tax, currently at 20% for the tax year 2016/17, applies to Profit before Tax, which is all income less deductions, including expenses, National Insurance, and PAYE.

As a firm of specialist contractor accountants, Churchill Knight & Associates Ltd can help you to receive the maximum amount of tax relief available to you, thereby maximising your take home pay. Read on to find out more about our services.

At Churchill Knight, we know administration tasks such as claiming expenses can seem overwhelming, especially if you are new to contracting. Our contractor accountancy service helps relieve the stress and administrative burden of operating a limited company by guiding you through the entire expense claims process.

Engaging the services of a contractor accountancy firm such as Churchill Knight can help you efficiently manage the operation of your limited company, so you can focus on doing what you do best. Our all-inclusive limited company accountancy solution enables our clients to feel confident that their accounting needs are being met by dedicated professionals.

If you have any queries on accounting for rechargeable and non-rechargeable expenses, including VAT on expenses, call us on 01707 871622 or email and we will be happy to provide more detail on the limited company accountancy option.

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