skip to navigationskip to main content
Accountants Cowley Holmes Chartered Accountants Excellence award
Business accountants SME tax Accountants in Bedfordshire Best accountants in Bedford

Recharged expenses, disbursements, and VAT thereon

Wednesday September 2018

Q. My client is an IT consultant, operating through a VAT registered UK company. He is supplying consultancy services to another UK IT business. He has incurred hotel, travel and meal expenses, and is charging these on to the company he is supplying. Can he treat these as disbursements, and therefore not charge any VAT on them?

A. The treatment of recharged expenses is a common cause of VAT errors. A disbursement is where you act on behalf of your customer in arranging and paying for goods or services, but the underlying supply remains between the supplier and your customer.

A common example of a disbursement is the Companies House filing fee. Here the supply is between Companies House and the company, but it is common practice for an accountant to file and pay the fee on their client’s behalf. Because the ‘supply’ remains between Companies House and the client, the accountant can treat this payment as a disbursement, as long as the disbursed amount is clearly shown on an invoice separately from any other supply, and the exact cost is passed on. The accountant, therefore, does not need to account for VAT when they recharge this cost on to the client.

However, in your client’s case the supplies of hotel accommodation, travel and meals are being supplied to and are consumed by them, not their customer. Therefore, this is not a disbursement, and your client must treat any recharge of these types of expense as further consideration for the main supply.

This is important, as supplies such as rail travel, which is zero-rated when your client purchases them, will have to be recharged at the same liability as the main supply. In your client’s case, their consultancy services are standard-rated, and therefore any recharge of their own expenses will follow this liability and also be standard rated.

Guidance on how to show recharges and disbursements on your invoices can be found on the GOV.UK website  VAT: costs or disbursements passed to customers

 

Social Sharing and Bookmarks:



Click here to see how easy it is to switch to Cowley Holmes

FREE Consultation

Worth £200 for Free Call us on
01234 355300 or click on the button below

Click Here

Fixed Fee Quote

Call us on
01234 355300 or click on the button below

Click Here

Sign up to our Tax &
Business Tips Newsletter

Ask an
Accountant a Question

Click Here

Become a Client

To find out 8 great reasons why you should get a quote.

Click Here

Claim your FREE Essential Guide to Understanding your accounts