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rammellconsult
Level 2

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Under UK HMRC guidance, certain costs which are passed on to customers can be treated as disbursements. If I record an purchase in the usual way (e.g. website domain registration fee), it goes into my balance sheet as a business expense. Similarly, when I charge that cost back to the customer, the income gets recorded as "Income" and affects turnover. If these items are true disbursements under UK HMRC rules, the initial purchase cost should not categorised as an expense and the reimbursement of the cost by the customer should not be categorised as part of turnover. It is just a pass-through cost. Is there any way in QuickBooks to accommodate this? Note: this is a specific HMRC meaning of the word "disbursement" and not simply a general payment to an employee or customer. See https://www.gov.uk/vat-costs-or-disbursements-passed-to-customers

Solved
Best answer February 07, 2019

Accepted Solutions
DMKmb
Level 3

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

The link you provided is only in reference to VAT. The HMRC webpage does not discuss the presentation of these amount on either the Balance Sheet or Income Statement, only that for your reimbursable expenditures (payment that you make and then charge your customer for) you cannot claim any VAT paid as a tax credit, and you cannot charge VAT for those same amounts to your client.

For the set-up it would be best to use a Balance Sheet account, as that it is your intention to charge your customer for all of these amounts and not record and not have them factored into your net income calculation. Create an 'Other Current Asset' account named as 'Disbursements Receivable' for amounts you pay that you have yet to charge a customer. (Please double check with a UK CA as to whether or not this is the preferred treatment, they may still say to use either an income or expense account)

 

Most of the actual accounting work is best handled through the use of items and tax items/codes.

Here I am not familiar with UK VAT codes that may be available to you preset on UK QuickBooks. However, the idea is to create / use a sales tax item and sales tax code for your disbursement purchases so that you record the VAT you pay as an addition part of the cost of the disbursements you make. This could require creating a dummy vendor as a tax agency, in which you would leave the 'Tax tax on purchases separately to' blank, and creating duplicate of your sale tax item 'VAT on purchases' as VATD - VAT on Disbursements, and a new sale tax code "D" as Taxable linked to the sale tax item VATD for purchases (leave sales as blank)

 

For the disbursement purchases you make, you will need to create an Item in your Items List called 'Disbursements' as an other charge. You can use one or create as many needed with variations to the name (Materials, Fuel, & etc -Disbursements)  to add detail to the 'Bills' you enter for supplier purchases or Invoices your create to customers. Check the item as being a reimbursable charge, you will reference the 'Disbursements Receivable' account for both Bills (purchase tax code D) and Invoices (tax code 'E' for exempt).

This way when you use the Enter Bill or Write cheques function to record disbursements you will use the 'Items' tab and select the 'Disbursements' items with the tax code D, so that the VAT you pay is calculated and entered as an additional part of the cost, and will not be claimed as a tax credit. (any other amounts not disbursements can be entered to the accounts on the expenses tab)

And when you Invoice your client, you will again use the same Disbursement items sales tax code E so that no VAT is charged on those items, VAT will only be calculated on the other sales/service you have provided items

 

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14 REPLIES 14
DMKmb
Level 3

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

The link you provided is only in reference to VAT. The HMRC webpage does not discuss the presentation of these amount on either the Balance Sheet or Income Statement, only that for your reimbursable expenditures (payment that you make and then charge your customer for) you cannot claim any VAT paid as a tax credit, and you cannot charge VAT for those same amounts to your client.

For the set-up it would be best to use a Balance Sheet account, as that it is your intention to charge your customer for all of these amounts and not record and not have them factored into your net income calculation. Create an 'Other Current Asset' account named as 'Disbursements Receivable' for amounts you pay that you have yet to charge a customer. (Please double check with a UK CA as to whether or not this is the preferred treatment, they may still say to use either an income or expense account)

 

Most of the actual accounting work is best handled through the use of items and tax items/codes.

Here I am not familiar with UK VAT codes that may be available to you preset on UK QuickBooks. However, the idea is to create / use a sales tax item and sales tax code for your disbursement purchases so that you record the VAT you pay as an addition part of the cost of the disbursements you make. This could require creating a dummy vendor as a tax agency, in which you would leave the 'Tax tax on purchases separately to' blank, and creating duplicate of your sale tax item 'VAT on purchases' as VATD - VAT on Disbursements, and a new sale tax code "D" as Taxable linked to the sale tax item VATD for purchases (leave sales as blank)

 

For the disbursement purchases you make, you will need to create an Item in your Items List called 'Disbursements' as an other charge. You can use one or create as many needed with variations to the name (Materials, Fuel, & etc -Disbursements)  to add detail to the 'Bills' you enter for supplier purchases or Invoices your create to customers. Check the item as being a reimbursable charge, you will reference the 'Disbursements Receivable' account for both Bills (purchase tax code D) and Invoices (tax code 'E' for exempt).

This way when you use the Enter Bill or Write cheques function to record disbursements you will use the 'Items' tab and select the 'Disbursements' items with the tax code D, so that the VAT you pay is calculated and entered as an additional part of the cost, and will not be claimed as a tax credit. (any other amounts not disbursements can be entered to the accounts on the expenses tab)

And when you Invoice your client, you will again use the same Disbursement items sales tax code E so that no VAT is charged on those items, VAT will only be calculated on the other sales/service you have provided items

 

Mollcons
Level 4

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

You have almost got it right. The referred article is saying (if you read some of the examples, which do make it clearer) that if you have consent of your customer (client) to recharge expenses, then you book the entire expense to purchases and then the entire cost (including VAT where charged) to the disbursement element on your invoice. The important element is that if VAT is charged in the original cost, then you do NOT reclaim the VAT but you recharge it to your customer included in the total cost.
rammellconsult
Level 2

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Thanks mollcons. I'm OK with the HMRC guidance - the issue is just on recording it accurately in Quickbooks. Actually, I'm on the VAT Flat-rate scheme so (a) the purchases will be logged as VAT code O (outside the cope of VAT) and (b) I need to ensure the charge-back to my client is NOT included as turnover as I'll be paying my flat rate VAT on it. I could simply use VAT code O on my client's invoice to ensure this amount does not get included in my calculation of total turnover for VAT flat-rate purposes, but the item cost to me will still get included as a business expense. DMKmb's response sounds right but I'm struggling to translate it into "key strokes". I tried setting up an 'Other Current Asset' account named as 'Disbursements Receivable' to record the initial purchase under but the system does not then allow me to tag it as a billable expense to charge back. I therefore can;t see how I then bill the cost to my client. I'm struggling here....
DMKmb
Level 3

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

On your purchase entry (bill/cheque) all you should have to do is entry you customers name/job under the 'Customer: Job' column and then put a check mark in the box under the billable column. If the company preferences are set correctly, the prompt to assigned billable expense, or amounts should automatically pop-up when you go to create an invoice for the client.

Though it looks like you will have to over-write and add on the VAT paid on the purchase to the amount charged to the client on the invoices you create.  The alternative would be to forgo the alternate tax set-up and just enter the reimbursable purchase items you enter on bills/cheques as including the amount of VAT and as a non-taxable item. This way when you go to create a customer invoice the total amount will be entered, and you will not have to go back and double check the initial purchase, and VAT charged.
rammellconsult
Level 2

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Thanks for the help. My problem was caused by not using the "Items" tab when recording the initial purchase. All sorted now. After charging back the client, I checked my account details; the initial charge does not show up as an expense item and the income received to pay back for the item does not appear as turnover for my flat-rate VAT calculation. The "Other Current Asset" account shows the amount going out (for the purchase) and then the same amount coming in to balance the account (for the reimbursement). Excellent!
DMKmb
Level 3

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Woo Hoo!! Have a good one.
brilliantaccttax
Level 1

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Hello, could you please explain the whole process you went through to record both purchase and invoice without affecting turnover and expense? I am stuck in a similar problem now.
jodage
Level 1

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Can anyone confirm where the "job number" and "tick box for billable" is?

 

cheers

ChristieAnn
QuickBooks Team

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Hi there, jodage.

 

I'll provide information to confirm where are the job number and billable options in QuickBooks Desktop.

 

Currently, there's no default option in QBDT for job numbers. However, you can customize your sales transactions like invoices. This way, you can add fields to show the job number.

 

Here's how:

 

  1. Click the Customer menu.
  2. Choose Create Invoices.
  3. Click the Customize Data Layout.
  4. You'll be routed in the Additional Customization page.
  5. Choose either Header or Columns button(depends on where you want to see the job number).
  6. Select Other. Then, enter job name in the box under the Title column.
  7. Put a checkmark under the Screen and Print columns.
  8. Hit the OK button.

 

If you're referring from the customer's mentioned above which is 'Customer: Job' column, you'll see this under vendor transactions. Please note that this option is a default in QBDT. I attached a screenshot for visual reference.

 

QBDT bill page.JPG

 

For your concern about the billable box, you'll need to turn on this feature first in the preferences. After that, you're able to see the billable option on the bill page.

 

Here's how:

 

  1. Go to Edit from the top menu.
  2. Select Preferences.
  3. Choose Time & Expenses from the left panel.
  4. Go to the Company Preferences tab.
  5. In the Invoicing Options section, check the Mark all expenses as billable box.
  6. Click OK.

 

 

qbdt bill oage 2.JPG

 

 

Please check this article on how to make sure that you have an accurate record of your job costs: Tracking job costs in QuickBooks Desktop. This also provides details on how to Run job costing reports to see how your business is doing on a job-by-job basis.

 

You can also refer to this article to see steps on how to fix common template issues in QuickBooks Desktop: Fix common issues when you use and customize templates.

 

Please know that you're always welcome to post if you have any other concerns. Wishing you and your business continued success.

jodage
Level 1

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Hi there

 

really appreciate the reply, but I can't find anything that your referring to nor is the customer column showing on my system.

 

Is this relevant to quickbooks online accounts in the uk?

 

many thanks

IamjuViel
QuickBooks Team

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Hello, @jodage.

 

You can use a Job Name or Job Number to denote the specific job you're currently working on. Let me guide you how to track jobs in QuickBooks Desktop.

  1. Go to the Customer menu.
  2. Choose the Customer Center.
  3. Select the New Customer & Job drop-down.
  4. Pick Add Job.
  5. Enter Job details.
  6. Click Ok.5017.GIF

On the other hand, a billable expense is a specific expense and/or time entries you incur on your customer's behalf especially when you perform a job for them. Here's how:

  1. Go to the Vendors menu,
  2. Pick Enter Bills.
  3. Type in the Bill details.
  4. Make sure to put a checkmark on the Billable column.
  5. Assign it to a specific Customer or Job.
  6. Click Save and Close. 5015.GIF

Once you create an invoice for the job, you'd be prompted by QuickBooks there's an outstanding billable cost assigned to it. 5016.GIF

However, if you're using QuickBooks Online UK, the billable expense feature is only available in QuickBooks Online Plus only. You'd want to turn on this feature in your account settings. Here's how: 

  1. Click the Gear icon.
  2. Select Account and Settings.
  3. Go to the Expenses tab.
  4. Click the Pencil icon in the Bills and expenses section.
  5. Check the Make expenses and items billable box.
  6. Select on how you track the billable expenses and items as income.
  7. Click Save, then Done.

You can read through this article for more detailed steps: Enter billable expenses.

 

Let me know if you have other questions about using QuickBooks in managing your job expense transactions. I'm always here to help.

jodage
Level 1

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Many thanks for the detailed explanation, greatly appreciated, however let me step through my query.

 

I am a uk user

 

I have quickbooks online essentials, not plus. So the answer is I can't utilise the billable expense, correct?

 

I do not have access to quickbooks desktop, I've tried to download the software but  get prompted for a     licence key that I can't find anywhere- the F2 button does not retrieve it. Is desktop available without additional fees to online essentials users?

 

Many thanks 

 

 

Mark_R
QuickBooks Team

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Thank you for clarifying, @jodage.

 

Yes, you're correct. Recording billable expenses is only available for QuickBooks Online (QBO) Plus. You'll want to upgrade your QBO version to get the feature.

 

Here's how:

 

  1. Click the Gear icon, then select Account and Settings.
  2. Go to the Billing & Subscription menu.
  3. In the QuickBooks Essentials tile, click Upgrade.
  4. Choose the plan you want to subscribe to.

On the other hand, QuickBooks Desktop (QBDT) is another software which includes fees upon purchasing it. 

 

As always, feel free to visit our QuickBooks Community help website if you need tips and related articles in the future.

 

Please touch base with me here for all of your QuickBooks needs, I'm always happy to help. Wishing you all the best and keep safe.

Janda1
Level 1

How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Hi, 

Can you be able to let me know how did you do it?

We have the same issues. 

We have tried the billable expense, but once we generated the report, it goes to expense. 

What we wanted is for the amount not to be as income and not as expense. 

We are using quickbooks online by the way

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