VAT Article – Disbursements vs Recharges

Jan 28, 2025

Many of our clients operating in both the goods or services industries recharge costs such as subscriptions, professional fees, travel and subsistence expenses to their customers. We often get asked whether there should be VAT on these charges and often the incorrect rate of VAT is applied.

A disbursement is where a business acts (as an agent) on behalf of their customer in arranging and paying for goods or services. Most importantly, the underlying supply is between the actual supplier and their customer and the invoice should reflect this i.e. the purchase invoice will be made out to their customer and not the ‘agent’. Disbursements are outside the scope of VAT and no VAT should be charged on these transactions.

At Ellacotts, it is common practice for us to treat a Companies House filing fee as a disbursement. The supply is between Companies House and our clients, however, we file and pay the fees on their behalf. So long as the filing fee is separately itemised and the exact amount is passed on to the customer then this will qualify as a disbursement.

On the other hand, where a business has purchased goods/services which will be used in the course of their business or a particular job, this will form a cost component of the main supply to their customer and should be treated as further consideration. It will be the purchasing business who will use/consume these goods and services to fulfil their contractual obligations.

Examples of recharges:

  • A VAT registered marketing consultant ordinarily charges VAT at 20% to his UK business customers. They have incurred costs on a train ticket, which is a zero rated purchase. The recharge will follow the liability of the main supply of the consultancy services and will be standard rated (20%) despite the train fare being VAT free.
  • An electrician, also VAT registered, is working on a new build dwelling and his services will be invoiced at the zero rate. They have decided to stay in a hotel, incurring VAT, for a few days due to the job being in another city. When it comes to recharging the hotel cost to their customer – this will also be zero rated. The builder can also recover the input tax on the hotel stay.

Further guidance can be found here: https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers, or if you have a query please contact our VAT Team at Ellacotts on 01295 250401 or email solutions@ellacotts.co.uk.

Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

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