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Introduction

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Disbursements are payments made to suppliers by a business on behalf of its customers and then recharged back to their customers when they invoice them.  VAT registered businesses can treat such

payments as disbursements for VAT purposes and thus not charge VAT on these costs when billed on to clients.  This is on the basis that they are acting as their customers agent and simply making payment for services on their behalf.

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To be able to do this, a business must ensure they meet the conditions listed below:

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• You paid the supplier on your customers behalf and acted as an agent for 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

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It’s usually only an advantage to treat a payment as a disbursement if the supplier didn’t charge VAT, or if your customer can’t reclaim the VAT.

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Note:  If a suppliers invoice contains your customers details (Name and address), then you cannot recover any of the VAT as it is not your input VAT.

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So if a customer asked you to purchase a web hosting service on their behalf and the above conditions are met, then this would be a disbursement  for VAT

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What is not a Disbursement

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Normal business costs incurred while providing services to customers (postage, Taxi Travel, Airline tickets) and then recharged on to customers etc are not disbursements for VAT purposes as the expenses are for the businesses use and not the customer. 

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If these costs are recharged,  then VAT must be added to the invoice to the customer even where the business originally incurred VAT on those costs.  So in effect the gross cost (cost incurred including 20% VAT) will be recharged to the customer plus an additional 20 % VAT levied for the direct supply to the customer.

 

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-Contains public sector information licensed under the Open Government Licence v3.0.

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