Disbursement or Re-Charged Expenditure?
Where a business incurs expenditure which is passed on to a customer, it is important to recognise the difference between a Disbursement and Re-charged Expenditure.
A cost incurred on behalf of a customer is classed as a Disbursement and is reclaimed from the client, but does not form part of the main supply of services or goods.
A typical example would be searches and land registry fees paid by a Conveyancer on behalf of a client purchasing land or property. Such expenditure must be shown separately and in full on the conveyancer’s sales invoice and does not incur Output VAT, as it does not form part of his main supply. Any input VAT included in the Disbursement must be passed directly over to the client for him to reclaim, if applicable.
However, expenses incurred directly by the Conveyancer in the course of supplying his service, e.g., travel or accommodation costs when visiting a client, are classed as Re-charged Expenditure. They are treated as part of his main supply, and will attract Output VAT at the same rate (even if the expense was zero-rated).
We have a dedicated VAT team that can help you distinguish what needs to be treated as disbursements and re-charged expenditure. Please contact us for further advice and assistance.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
