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Disbursement v Recharge. When is VAT applicable?

2014
13
OCT

Lots of service suppliers add "disbursements" to their invoice - solicitors and accountants are an example - but what is a disbursement?

A disbursement is a payment made to a supplier on behalf of a customer but is only a disbursement if you pass the cost on to the customer.  A disbursement is not VATable.

The cost which is passed on to the customer is a disbursement if:

  • You paid the supplier on behalf of the customer and therefore acted as an agent
  • Your customer had the benefit of the goods or services purchased
  • You had permission from your customer to make the payment
  • It was your customer's responsbility to make the payment
  • Your customer knew the goods or services were from another supplier
  • You show the costs of these goods or services separately on your invoice
  • You pass on the exact cost of the goods to your customer
  • The goods and services paid for are in addition to the cost of your own services

You may, of course, incur other costs on behalf of your client which you will wish to recharge to them.  However these are not disbursements but rechargeable costs and are VATable. They may include:

  • Postage costs you incur when sending mail to your clients.  If you recharge these costs you must add VAT.
  • A bank fee which you have incurred which you recharge to your client.  Although the bank fee is exempt from VAT the recharged fee is VATable.
  • Travel costs incurred when visiting your client.  These are rechargeable costs not disbursements as you have incurred the cost on behalf of your client, your client has not incurred the cost directly.

Claiming VAT

  • You can claim back VAT, if you have a VAT invoice, on anything that was supplied to you.
  • You cannot reclaim VAT on anything that was supplied to your customer and not to your business if you invoiced your customer for these supplies as a disbursement and therefore did not charge VAT.

If you pass on disbursements to your customer you will need to keep a VAT record to show that you were entitled to not charge VAT on them and also to show that you have not claimed VAT on the items you bought on your customers' behalf.

 

 

 

 

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Salisbury
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