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Is VAT Chargeable on Disbursements?

By Andy Vessey


Knowing the difference is important in getting the VAT right

What exactly is a disbursement and is it any different to re-charging your client for a business expense that is eligible for reimbursement? Well, there is a difference and it's important to know what it is so as to get the VAT treatment right.


A disbursement is a payment that your business makes on behalf your client.  Such payments are outside the scope of VAT and whilst VAT cannot be claimed in respect of the expense, no VAT is charged on them when you invoice the client. This is because it is the client and not your business that buys and receives the goods or services; you are simply acting as their agent.

Some trades and professions, however, traditionally accountants and solicitors, use the term 'disbursement' when referring to various incidental costs, e.g. travelling expenses. Such costs appear on their sales invoices as separate items, distinct from the main services. Whether or not these incidental costs qualify to be treated as disbursements for VAT purposes however will depend on all of the following conditions being fulfilled:

  • you paid the supplier on your client’s behalf and acted as the agent of your client;
  • your client received, used or had the benefit of the goods or services you paid for on their behalf;
  • it was your client’s responsibility to pay for the goods or services, not yours;
  • you had permission from your client to make the payment;
  • your client 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 client when you invoice them; and
  • the goods and services you paid for are in addition to the cost of your own services.

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

Not a disbursement

There are many incidental costs your business might incur that must be included in VAT calculations when you invoice clients. These include items like travelling expenses and your own postage and delivery costs.

Costs that your business incurs itself when supplying goods or services to clients are not disbursements for VAT. It’s you who buys the goods or services for use in your own business. It’s up to you whether or not you itemise costs like these on your invoices. If you do show them separately when you invoice your customers they’re known as ‘recharges’, and not disbursements and you have to charge VAT on them whether you paid any VAT or not.

Some examples of costs that could be recharges but are not disbursements include:

  • an airline ticket that you buy to visit a client or to travel to a job. If you recharge the cost to your client you must charge VAT because the flight was for you, not for the client.
  • postage costs you incur when you send letters to your clients. These are normal business costs and you must add VAT if you recharge them.
  • a bank transfer fee paid when transferring money from your business account to a client’s account - even though the bank’s fee is exempt from VAT, if you recharge the fee you must charge VAT, because it was for a service provided to your business and not to your client.


A website design consultant based in London does a week’s work for a client in Edinburgh. The consultant visits the client’s premises at the start of the week to discuss the project. The consultant also agrees to purchase a website hosting package from an Internet service provider on behalf of the client.

The consultant and the client agree the following fees:


Fee (£)

Consultancy work

2,500 + Vat

Travelling expenses


Website hosting package purchased on the client's behalf



The £300 travel cost that the consultant recharges to the client is not a disbursement so the consultant must charge VAT on it. The cost of the website hosting package is, however, a disbursement and can be excluded from the VAT calculation.

When HMRC carry out a VAT inspection of your records they will check to see that any disbursements have had the proper VAT treatment applied to them. If not, then you will not only have to stump up the VAT but interest and penalties as well, so take care.

Published November 2014