Are you billing disbursements correctly?
When preparing your bills you will have a variety of costs relating to the services you provide, including disbursements incurred, and it is important that these costs are treated correctly for VAT purposes.
A payment qualifies as a disbursement for VAT purposes if the following criteria are met:
– The payment has been made to a third party, on behalf of your client, whilst you were acting as agent.
– Your client is charged the exact amount paid to the third party.
– The client authorised the payment.
– You show the amount separately on your bill.
– The goods/ services provided were properly required on behalf of your client.
Common examples of costs which do qualify are stamp duty; estate agents fees; office copies; land registry charges; medical fees; medical reports; hire charges; vehicle repairs.
If the costs incurred on behalf of your client qualify as disbursements for VAT purposes then no VAT should be charged to the client on your bill. Similarly no VAT should be reclaimed unless the client you are acting for is VAT registered and they retain a valid VAT invoice.
Any costs charged to your clients that are incurred as part of your normal service to them cannot be treated as a disbursement for VAT purposes. Therefore you should charge VAT on such costs when preparing your bills.
Common examples of costs which do not qualify are bank transfer fees to or from your office account on behalf of your client (even if you only charge the equivalent of the transfer fee charged by your bank); business expenses such as telephone, postage, traveling, subsistence or other office costs.
These costs should be billed as part of your profit costs and should be shown on your bill before disbursements are listed out, either separately or included as part of your total charge.