How to tag advance expenses to employee

[sinowayuk]

Hi If the business prepaid an employee for an overseas trip say £500 how do we tag the transactions?

1. payment out of £500 from business bank account to employees bank account as advance expense payment
2. employee say used £400 out of the £500 with receipts, and left £100 to return to business
   thanks

[QFSteve]

Hello @sinowayuk

I would set up a merchant account for this “Employee expenses”.

£500 out of the main bank, tagged as a transfer to another account (“Employee Expenses”?)
£400 out in the new account, tagged to the purchases (as individual payments)
£100 tagged as a transfer back to the main bank

[sinowayuk]

thanks what if employee not back yet to settle the transactions, but company need to tag transactions due to vat period due? i.e. the £500 out of business bank account still pending

[QFSteve]

Hello @sinowayuk

If you don’t have the invoices/receipts yet It would have to be on your next vat return.

[sinowayuk]

but do i need to tag that payment out? thought need to complete all explanation before i can proceed vat submission?

[QFSteve]

Hello @sinowayuk

but do i need to tag that payment out?

You can do but it will not show on the vat return

The return picks up payments to invoices, tagging the payment is just like moving the money between bank accounts.

As long as you can account for the money, it will show on your next return

[sinowayuk]

So I set up a merchant bank account as Employees expenses, and tag it to transfer there first? or I can just leave it untagged, and i can still proceed the VAT return?

[QFSteve]

Hello @sinowayuk

You can leave it untagged or tag it as transfer to the merchant account. either way it will not affect the vat return.

[cbstephensaca]

The £500 advanced to the employee is in effect an employee loan, which will either be repaid (if not spent) or utilised by way of expenses. I would allocate it to a nominal code such as other debtors. You can set one up specific to each employee if you prefer.
Alternatively, depending on how you deal with employee expenses, if you have a supplier account for the employee, you can just allocate it as an “overpayment” or payment in advance on their supplier account, which will then be offset by the expenses once they have returned and submitted them.
Either way, the advance should not hit the VAT return at all. The VAT (if any) is reclaimed when the employee’s expenses are submitted. As it’s an overseas trip, there’s not likely to be much VAT to reclaim anyway I would have thought.