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We have noticed that our clients have been asking about “VAT and disbursements”, and how to account for them.
Lots of service suppliers add "disbursements" to their invoices - solicitors and accountants are an example, but what is a disbursement?


IMG 5167A 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. Please note that a disbursement is not vatable.


The conditions for disbursements are:


• You have paid the supplier on behalf of the customer, and therefore acted as an agent
• Your customer has received the benefit of the goods or services purchased
• You had permission from your customer to make the payment
• It was your customer's responsibility 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


There is the potential to incur costs on behalf of your client, which you would recharge to them, however these are not disbursements, but rechargeable costs and are vatable.


Some examples of these include:


• Postage costs you incur when sending mail to your clients would have VAT added if recharged
• A bank fee which you have incurred which you recharge to your client although bank fees are exempt from VAT, but become vatable when recharged
• Travel costs incurred when visiting your client are rechargeable costs (not disbursements) as you have incurred the cost on behalf of your client


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


For any more queries on this please contact EST Accountants Ltd, and we will be more than happy to answer any queries that you may have.