Connect Invoices and Bills

Hi there, @Shahriar.

Allow me to share some details about Value Added Tax (VAT) in the United Kingdom and the process on how to link your Bills to your customer's Invoice.

VAT is a tax on business transactions that affects all purchases and sales, hence, it's not a tax on profits. You will either pay taxes charged on your bills or include them in your sales. If you pay out more in input tax (tax being charged on the bills you've paid) than you collect in output tax (vat added to your sales), you can fill in a form and reclaim the money from HMRC.

To link the Bill to the Invoice transaction, you'll have to turn on the Billable feature in the Account and Settings. I'd be happy to show you how to do that.

1. Go to Settings and select Account and Settings.
2. Select the Expenses tab and click the Edit or Pencil icon in the Bills and expenses section.
3. Turn on the Make expenses and items billable by clicking the radio button beside it.
4. Choose the applicable setup if you want to put a default markup rate or track it as income.
5. Select Save and Done. This is how it looks like:

Once done, you can create a Bill transaction and enter the Customer's name on the line item so that it will be tracked by the time you're going to create an Invoice.

I've added some screenshots for your reference:

To know more about the process, you can check out this article: Enter billable expenses.

You may also consider visiting the HMRC website regarding how VAT works: Businesses and charging VAT.

I'll be here if you have other questions. Feel free to tag my name in the comment section. Take care.

I want to be able to assign individual vendor bills to a specific customer, so when I run the P&L report by customer I can review the profitability by customer. Can you explain how this can be done? 

Good to see you here, Gabriel Llausas.

I'm happy to guide you on how to assign a bill to a customer in QuickBooks Online.

To start with, make sure that the Billable Expense feature is Turned on. 

Here's how:

1. Click the Gear icon at the top.
2. Select Account and Settings.
3. Go to the Expenses tab, then go to the Bills and expenses section.
4. Click the pencil icon and put a checkmark for the following: Show Items table on expense and purchase forms, Track expenses and items by customer, and Make expenses and items billable.
5. Click Save.
6. Click Done.

To assign a Bill to a customer, here's how:

1. Click the Plus icon at the top, then choose Bill.
2. Enter the Supplier, Bill date, and Due date.
3. In the Account or Product/Service field, choose the expense account or product/service for the item or service you purchased for the customer.
4. Enter the cost of the items in the Amount field and Description.
5. Choose a customer to be billed for the item or expense from the Customer drop-down.
6. Choose the Billable checkbox.
7. Enter a Markup percentage, then if you need to charge tax for the item or service, select the Tax checkbox.
8. Click Save and close.

You may read this article for more detailse: Enter billable expenses.

Should you have any follow-up questions or concerns in managing your transactions,  don't hesitate to post again here in the Community or leave a comment on this thread. Take care and have a good one.