Let’s start with what is reimbursable expenses? Basically it’s something you buy, an expense to your business, which you use for a client that is then added to your invoice to them.
Here’s an example to make it even clearer:
You take your car for a service to the garage and to complete the service the garage replaces the air and oil filters. When you collect the car and pay your invoice will include the air and oil filters as items the garage is charging you for.
the filters are reimbursable expenses for the garage.
So how do you make sure the expenses you have as a business are reimbursable expenses? They have to meet the following 3 requirements:
- The client must be informed that the company is paying this amount.
- The invoice will include the client’s tax information.
- The original invoice must be held by the client.
If these requirements are not met, it will not be considered a compensation expense.
So if we take the example above
- The client must be informed that the company is paying this amount – The garage has to tell you the service will include a cost for the parts used
- The invoice will include the client’s tax information – The garage has to add your tax information to the invoice
- The original invoice must be held by the client. – The garage has to give you a copy of the original invoice
So why is it important for you to met these requirements?
No on want’s to pay more tax than they have to and reimbursable expenses are not subject to IGIC (General Indirect Canary Islands Tax)
This also means that their amount will be added to the total invoice amount and not included as a standard item on an invoice which is subjected to the 7% tax
You issue an invoice to your client which has 3,000 euros for your services plus 600 euros for the purchase of materials (the reimbursable expense), including IGIC. The invoice to be issued to the client is as follows:
- Taxable base: 3,000 euros
- IGIC (7% on 3,000): 210 euros
- Compensation expenses: 600 euros
- Total invoice: 3,810 euros
Want a tip to make this easy?
Send out separate invoices – one with the services rendered plus IGIC and another one with the reimbursable expenses without IGIC.
Working with us means we provide the advice and support to make sure you are invoicing correctly and only paying IGIC on the invoiced amounts you need to. If you are not getting this service from your current accountant maybe it’s time to swap
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