Billable expenses (disbursements) and GST

Two questions:

  1. In Settings > Chart of Accounts, why is there no way to give either ‘Billable expenses’ or ‘Billable expenses - markup’ a tax code? I’d like to have GST appear automatically when I generate purchase and sales invoices, but I can see no way to do this for billable expenses. Creating Invoice Items with GST tax code doesn’t help, because selecting the ‘Billable expenses’ account overrides the tax code to ‘No tax’.

  2. Billable expenses are showing up on the GST calculation worksheet as ‘Capital purchases’. Is that how it’s supposed to work? I would always have included them under ‘Non-capital purchases’ previously.

I fixed both issues in the latest version (15.4.45)

You da man. Many thanks!

Sorry to bump this old topic. It seams reasonable to keep the question in this thread:

What happens when I have billable expenses with different tax rates? I guess I can create additional accounts in chart of accounts with the corresponding tax rate, but does that work overall given that the basic billable expense account is a built in account?

Are these billable expenses with different tax rates on the same Purchase Invoice ?
If yes, then enter each billable expense on its own “Account” line.

Not sure why you would create additional accounts, as the different tax rates will be listed separately within the tax reports.

Yes these billable expenses with different tax rates on the same Purchase Invoice.

I thought that by setting the tax on the billable expenses account in chart of accounts the invoice that gets generated form it will have the tax rate automatically selected. Thus when invoicing many expenses they will carry with them tax rate they had. Instead of the user selecting a tax rate for every expense individually.

So to paraphrase, I was assuming that by setting the tax rate on billable expenses in chart of accounts, items in invoices will get that tax rate automatically. But maybe my assumption is wrong.

Yes, items will get that tax rate automatically but during the inputting of the purchase invoice you can override that set tax rate on any particular line by clicking on the tax field.

I know I can override the tax rate. But it’s an inconvenience if I have to do it on 10-20 lines. That’s is why I thought that having predefined billable expenses marked with different tax rates would be convenient.

Thanks Brucanna for clarification.

Hmmm… but maybe there is a bug as well?

So, I set the tax rate on billable expenses in chart of accounts:


Then I create a purchase invoice with a tax item:

Then, when I go to invoice the expense, the tax code is not selected:

Or it shouldn’t be auto selected at all?

The tax code will only work for the purchase invoice not the sales invoice as Billable Expenses is an asset account. Tax paid is associated with asset and expense accounts, tax charged is associated with liability and income accounts.

A question, as you are only being reimbursed for the billable expense, not selling, is there tax applicable ?

Yes, in the situation that I have tax is applicable, although it might not be the classical billable expense scenario: I receive a electricity invoice for a whole building. Then I invoice that to customers who rent offices per their usage. Tax is calculated on both purchase and selling invoices.

@novica, based on what you have written, I do not think using billable expenses is appropriate for what you are doing. This opinion is based on your statement that you must apply tax in addition to what you were charged by the supplier.

First, a billable expense is not an expense of your company, but something you can pass through to the customer because the customer could have purchased it themselves. An example is when a plumber is hired to repair a faucet. He discovers that a new valve stem is needed, so he goes to a plumbing supply shop, purchases the valve stem on behalf of the customer, and installs it. He treats the valve stem as a billable expense, because it has nothing to do with the running of his business. He invoices for it only to be reimbursed. The main element of the sales invoice is his labor charge. If there is tax on the purchase, that is passed through to the customer in one of two ways: (1) recording the purchase at the full price, including tax, but not designating a tax code, then invoicing at that amount with no tax code or (2) marking the purchase with a tax code and marking the sales invoice with the same tax code. Either way the tax is passed entirely to the customer. Of course, you can only use billable expenses this way if allowed by your tax laws. If the plumber maintained a stock of valve stems in his truck, the situation would be different. He would now be the seller of the valve stem and would not treat it as a billable expense.

Second, a billable expense can only apply to a single customer. In your electricity example, it is being divided among many. To my way of thinking, you are buying the electricity from the utility company and selling it onward to tenants. Yes, you could divide the purchase of electricity into shares according to what you will charge each tenant, but that could become unworkable. You might now or in the future have some leases that include electricity and others that do not. You might negotiate a fixed monthly amount for utilities with some tenants but charge others a full percentage share. And if your tax law requires you to add tax on the electricity costs you pass along on top of the tax you already pay to the utility company, you are definitely in the position of being an electricity reseller. And that makes billable expenses inappropriate.

Another thing to consider is that when you post a purchased item (electricity) to Billable expenses, only the non-tax portion of the purchase goes there. The tax code you defined for the Billable expenses account is only a short-cut for entering purchases. That saves you from needing to select the tax code on every line of the purchase invoice. But since the tax is posted to a separate Tax payable account, it cannot have anything to do with the tax code applied when you invoice the billable expense. The program cannot know in advance what tax code will be applicable when a billable expense is invoiced.

Exactly: the customer can register at the electricity company on their own, but for overall convenience this is not done. The expense would not occur if the customer is not using any electricity, and thus, although this is not the classic plumber example, it fits the general concept of a billable expense. I don’t see how the tax changes anything here: I pay 100 + 10 in taxes, and invoice 100 + 10 in taxes. It comes down to zero. Since it comes down to zero, I am in no way a reseller of the electricity. (Anyway, reselling electricity would require a license.)

I was just assuming that it would be logical that the applicable tax code when a billable expense is invoiced is the same as the applicable tax code on the purchase. (If not, then in that case I would be reselling, which I’m not.)

Thanks for the clarification @Tut. It was helpful.

It doesn’t change anything, as long as you are billing out the same amount of tax as you paid. While unusual, this application of billable expenses (as long as you divide the purchase into multiple lines for the different tenants) will work fine. In fact, it is creative. My earlier comments were based on your statement, “Tax is calculated on both purchase and selling invoices.” I interpreted that to mean you were calculating additional tax. Your further comments seem to clarify that you are only passing the tax through. Notice my earlier statement, “This opinion is based on your statement that you must apply tax in addition to what you were charged by the supplier.” Since that is apparently not what you meant, my opinion is now changed.

You are still left with the possibility that some tenants might not be charged for some or all of their electricity, based on details of their leases. But as long as you divide the purchase according to what you will bill out (and post any remainder to your own expense account) you will be all right.

So in the end, this discussion comes down to knowing that tax codes on billable expenses only apply when the purchase is made. This is true whether applying codes to purchase line items or the entire Billable expenses account. Tax codes upon invoicing billable expenses to a customer must be handled separately.