How to apply VAT on billable Expense when adding it to an invoice

How to apply VAT on billable Expense when adding it to an invoice

Hi there,

My company operates under VAT flat rate scheme. 

I have a 'Software Expense' account added via Zoho Expenses marked as Reimbursable and Billable to customer X

When I raise an invoice to client X and I select the 'Software Expense' in order to 'link it' to the invoice and adjust VAT column to 20%. I will then receive the following message  

  • VAT cannot be applied on this account. Please enable the Include transactions in VAT Return option from Accountant -> Chart of Accounts to apply VAT.
If I enable the Include transactions in VAT Return option this expenses will then show up on my next VAT return which is incorrect. On flat rate VAT the company do not claim VAT on expenses. Only for Assets over £2K.

I have raised the problem with Zoho Support few days but I don't seem to get anywhere with them.
My ticket number is [## 14630433 ##]. I must be able to invoice my customers, charge them VAT and do not pay VAT on the expenses below £2K.

Surely I am not alone on this.

Please could anyone share your experience and workarounds?

Thanks,
Rod