Articles

 
29 Jan

VALUE ADDED TAX ON REIMBURSA

A reimbursable expense is incurred by an employee on behalf of an employer or a company on behalf of its client which is expected to be refunded to the employee or the company as the case may be. An example of this is a case of audit/tax service where a professional fee is agreed. Along with the agreed professional fee for the audit/tax service, other expenses like cost of stationery, transportation, telephone and hotel bills are incurred. These other expenses could be referred to as reimbursable expenses as stated in the service level agreement/letter of engagement. In this context, it is expected that a company or an individual is refunded after a reimbursable expense is incurred

On a typical invoice, the value of goods or services is usually separated from reimbursable. Also, Value Added Tax (VAT) is charged only on the portion of the consideration for the goods or services but not on the reimbursable. Similarly, there could be a situation where an invoice is designed such that it communicates costs, in form of reimbursable expense and mark-up. In this case, VAT is usually on the mark-up.

Over the years, the tax authority has raised VAT assessments on tax payers who had failed to charge and remit VAT on reimbursable expenses. The argument here has being whether or not Value Added Tax (VAT) is chargeable on reimbursable expenses.

29 Jan