VAT on disbursements

I am a freelance marketing consultant and I have a question about VAT on disbursements. I am incurring some travel expenses which my client has agreed to pay so I will be recharging these expenses to them, I am VAT registered but there is no VAT on my travel costs – do I need to charge VAT to the client when I recharge them?

VAT on disbursements

If you are VAT registered and make a purchase on your customers’ behalf you may be able to invoice your customer without charging VAT. This treatment is called ‘disbursements’ for VAT.

This can be advantageous where the supplier didn’t charge VAT or if your customer cannot claim VAT.

VAT on disbursements can be a complicated topic to understand. Certain criteria must be in place for the above treatment to be allowable – they are the following:

  • you paid the supplier on your customer’s behalf and acted as the agent of your customer
  • your customer received, used or had the benefit of the goods or services you paid for on their behalf
  • it was your customer’s responsibility to pay for the goods or services, not yours
  • you had permission from your customer to make the payment
  • your customer knew that the goods or services were from another supplier, not from you
  • you show the costs separately on your invoice
  • you pass on the exact amount of each cost to your customer when you invoice them
  • the goods and services you paid for are in addition to the cost of your own services

With regard to your travel expenses incurred these would class as a recharge, not a disbursement since the travel was for you and not that of your customer, therefore you would have to charge VAT when you pass the costs on.

If, on the other hand, you had purchased a train ticket for your customer on their behalf, for them to go to a meeting with you then their cost of travel could qualify as a disbursement for VAT purposes. You can check further details on how this works on the HMRC website.

If you pass on any disbursements to your customers and don’t charge VAT on them, you must keep evidence to show that you were entitled to exclude the items for VAT purposes.

You will also need to show that you haven’t claimed back the VAT on items you paid for on your customers’ behalf.