When you pay costs on behalf of a client or incur expenses that you later re-invoice, the correct VAT treatment depends on whether those costs qualify as advanced costs or billable expenses. This article explains the difference and shows you how to manage both types in Accountable.
Please note that this article provides general guidance only. Tax rules may vary depending on your individual situation. When in doubt, ask your Tax Coach.
This article covers the two categories of client expenses, how VAT applies to each, and how to record them step by step in Accountable.
1. What is the difference between advanced costs and billable expenses?
Advanced costs
(Frais avancés / Voorgeschoten kosten)
Advanced costs are expenses you pay on behalf of someone else, where the invoice is not in your name. You make a purchase in your customer's name and on their behalf, advancing the money. That is all.
Example: Your customer invites you to a restaurant and, when it is time to pay, realises they have forgotten their wallet. You pay on their behalf, and they ask you to re-invoice the amount.
Billable expenses
(Refacturation de frais / Kosten doorfactureren)
In practice, this is what happens the most often
Billable expenses cover everything that does not qualify as advanced costs. If you do not meet all the conditions under art.28, 5° CTVA, you are dealing with billable expenses.
In this case, the invoice for the expense is in your name and you have paid it. You then re-invoice these costs, fully or partially, to your customer.
Example: You are a plumber replacing a customer's toilet flush. You buy the flush from your supplier and receive a purchase invoice in your name, with your contact details, VAT number, etc.
🚨 The crucial distinction is made at the point of the expense: who pays and whose name is on the purchase invoice?
2. How do I manage VAT on my sales invoice?
For advanced costs
What VAT rate applies?
When you invoice your customer, you are simply requesting reimbursement of the amount advanced. You must issue the invoice in the customer's name and apply no VAT, as required by law (art.28, 5° CTVA). The amount advanced and invoiced to obtain reimbursement is not part of the taxable base.
🚨 Warning: Do not charge any surcharges or mark-ups! Advances are not included in your tax base if the invoice shows the exact amount without applying VAT.
→ If you ask for a majoration or supplement, then you are asking for more than you have advanced, and this is then considered a service performed for which you are compensated. In this case, VAT must in principle be applied to the total amount (Art.26, §1 CTVA).
For billable expenses
What VAT rate applies to re-invoiced expenses?
A. Re-invoicing expenses linked to a principal operation
💡 A principal operation occurs when you have supplied a good or service directly linked to your self-employed activity and, on that occasion, you re-invoice the customer for certain costs directly linked to that good or service.
When costs are re-invoiced as part of a principal operation, apply the same VAT rate as the principal operation. In accounting and VAT terms, the accessory (the toilet flush, in this example) follows the principal (the installation of the flush).
🚨 Warning: Your invoice must clearly separate the service provided and the re-invoiced expenses, and in this case, your invoice will have two separate lines.
If you re-invoice the costs in a separate invoice: same principle, the VAT rate should follow the rate of the main operation.
B. Re-invoicing expenses not linked to the principal operation
If the expenses are not linked to the principal operation, the re-invoiced expenses follow their own VAT rate. On your sales invoice, the VAT rate on the re-invoiced expenses mirrors the VAT rate on the purchase invoice.
If the expenses are outside the scope of VAT (that is, exempt from VAT, for example insurance companies or school and university education), no VAT applies when re-invoicing.
3. How do I manage advanced costs and billable expenses in Accountable?
Advanced costs
⚠️ Advanced costs: Do not send these invoices to your client via Peppol. Send them by email or as a PDF only.
In the Revenue tab: Create the invoice in Accountable and send it to your customer by email or as a PDF (not via Peppol). Once your customer has received the invoice, delete it in Accountable, as it cannot be counted as revenue. Keep a copy of the invoice in case of an audit.
In the Bank tab: Classify both transactions as a "Personal payment".
🚨 Warning: Never add the purchase invoice to the Expenses tab, as the purchase invoice is not in your name and therefore cannot be considered a deductible expense.
Billable expenses
Example:As part of an assignment for your customer, you incur travel costs for a train journey. You buy a train ticket and re-invoice it to your customer.
In the Expenses tab: Add the purchase invoice to the corresponding category. In the train ticket example, the VAT rate is 6%.
In the Revenue tab:
🚨 Reminder: Your invoice must clearly separate the service provided and the billable expenses, and in this case your invoice will have two separate lines.
If you re-invoice the charges in a separate invoice: same principle, the VAT rate should follow the rate of the main operation.
Example of an invoice with the billable expense:
The re-invoiced train ticket appears on a separate line and follows the same VAT rate (21% in this example) as the principal operation category:
Note: The amount you spent on the train ticket (€50 including VAT) becomes the amount excluding VAT when you re-invoice the cost.
In the Bank screen: Link the transactions to the corresponding expense and revenue entries.
Key takeaways
Advanced costs are paid in your customer's name: invoice without VAT and delete the invoice from your revenue after sending it.
Billable expenses are invoiced in your name: apply the VAT rate of the principal operation (if linked) or the VAT rate on the purchase invoice (if not linked).
Never send an advanced cost invoice via Peppol: use email or PDF only.
When re-invoicing a billable expense, use the amount excluding VAT as the base amount on your sales invoice.
Need help? Chat with us or email support@accountable.eu, we're happy to help.