How to Record Business Expense Paid by Someone Else

adamapple

Probably a simple solution to this and don't want to risk looking like a fool by asking the accountant.

Both my son and me are self employed, I saw some business items reduced and bought them for him.

How does my son record this expense and reimburse me.

Jeremy535897

Give your son the bills for his records. He can pay you out of the business account, and the other leg of the transaction will be the expenses type of the items. If you paid for some small tools, for example, debit tools, credit bank. If he doesn't have a business bank account and pays you out of cash, debit tools, credit capital introduced.

VAT cannot normally be reclaimed on items bought by someone else, even if your son is registered for VAT.

adamapple

Jeremy535897 said:

Give your son the bills for his records. He can pay you out of the business account, and the other leg of the transaction will be the expenses type of the items. If you paid for some small tools, for example, debit tools, credit bank. If he doesn't have a business bank account and pays you out of cash, debit tools, credit capital introduced.

VAT cannot normally be reclaimed on items bought by someone else, even if your son is registered for VAT.

Okay thanks. There's another complication. I bought the items in the last financial year, and we both forgot he hadn't paid me back, and have only cottoned on as he's in the process of preparing to submit his tax return. Can he still add this expense to the last financial year or does it need to be added to the current financial year. 

Jeremy535897

It depends on whether he uses the accruals basis or the cash basis. If the former, adjust last financial year (I am assuming the tax return is not yet filed, otherwise it would need to be amended). If he is on the cash basis, account for it this year.