How are expenses passed on to customers?
Expenses, such as those for travel, lodging or meals, can be passed on to the customer in various ways. We will show you what options you have for this.
Travel, lodging or meal expenses are often incurred when performing work. Naturally, we do not want to bear these expenses ourselves. They are a necessary part of the rendered service and must likewise be passed on. In the end, it is not even possible in most cases to render service for the customer without them. There are two options for handling expenses.
Conventional transaction by passing along expenses
When passing expenses on, you pay them when they are incurred. These expenses are then charged to the customer, where they are most often separately designated. At the same time, it should be noted that expenses are also subject to sales tax.
In particular, sales tax is levied on services rendered for a fee, which are provided by taxable individuals in Switzerland. According to the Federal Tax Administration, compensation also includes the reimbursement of all expenses, such as those for travel, meals, lodging, etc. even if they are incurred abroad.
Thus, expenses must also be passed on with the sales tax rate applicable for your service. A current sales tax rate of 7.7% to then be charged applies for most services, for which expenses are incurred. It does not matter which sales tax rate (7.7%, 2.5% or 3.7%) you have paid for the goods or service purchased from you. Conversely, Article 21 MWSTG (Sales Tax Law) regulates what services are not subject to sales tax. If no sales tax is levied, it likewise cannot be deducted as an input tax. For this reason, the law permits voluntary submission in most cases.
When passing on expenses, you can decide if you charge your sales tax on the net amount (without the sales tax you paid) or on the gross amount (including the sales tax you paid), however this should be agreed upon with the customer in advance in order to prevent any misunderstandings.
Both variations have advantages and disadvantages. If you pass on the net amount to your customer, he will ultimately pay less. However, this is then a zero-sum game for you because you have no financial benefit for the administrative effort resulting in conjunction with the expenses (hotel search, flight reservation, passing on expenses, etc.). If you pass on the gross amount (i.e. including the sales tax you paid), this will cost your customer more but the amount of sales tax you paid remains as compensation for your effort in conjunction with the expenses. The instrument of the input tax deduction should likewise not be forgotten. This allows you and your customer to normally be able to deduct the paid sales tax from your expenses.
While in the case of the model of passing on costs expenses are incurred in your own name and at your own expense and the customer is subsequently billed for these including the sales tax you are charging, with the method of transitory items they are incurred in the name of your customer. According to Article 24 Section 6 letter b MWSTG, transitory items are amounts that you receive from your customer as reimbursement for the expenses incurred in his name and for his account. However, these expenses must also be implicitly billed in the name of the customer and are separately designated in a separate invoice. In the best case, an individual account is set up for invoicing by means of transitory items.
Unlike with the method of passing on costs, no sales tax is charged with transitory items. Transitory items are also not recorded in your accounting as operating revenue/operating expenses when determining profit because economically they do not yield modifications of the business assets. Thus, you do not post these expenses as expenditure or the reimbursement as profit. In contrast, the customer will post these expenses in his accounting, which is why it is important that all invoices and receipts are passed on to the customer. Known examples for transitory items are services from external providers, public fees, court fees or customs fees (for example, as expenditures of a freight forwarder).
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