Call for Assistance: 02033 259 341
Spondoo Accounting
Call for Assistance: 02033 259 341
Spondoo Accounting

When you are paying for items on behalf of a client - is it a disbursement or simply part of your service (recharge)

July 13, 2022

Disbursements vs Recharges 

As a VAT-registered small business owner, you may incur some costs when providing a service to your client. If you have agreed with your customer that you will pass those costs to them on your invoice, it is crucial to understand the difference between disbursements and recharged expenses. 

To make everything clearer, we have created this guide to help you understand when payments like these can be treated as disbursements or recharges – and when you should charge VAT on the costs and expenses you pass to your customers. 

What is a disbursement? Disbursement Examples 

A disbursement is a payment made by a business on behalf of their customers, for goods or services received and used by the customer. In other words, it is the payment you make to suppliers on behalf of your customer (as an agent), but the cost will be passed on to your customers when you invoice them.  

As these costs relate to your client’s business, you cannot claim back any VAT on them or charge VAT on them when invoicing your customer. If your customer wants to reclaim the VAT on the cost, you will provide them with an invoice in the name of their business.  

To ensure there are no VAT problems in relation to disbursements charges, your disbursement cost must meet all the following conditions: 

  • Your customer was supposed to pay a supplier for goods or services 
  • But you paid the supplier on your customer’s behalf as their agent. 
  • You had a go-ahead from your customer to make the payment on their behalf. 
  • Your customer received, used, or had the benefit of the goods or services you paid. 
  • Your customer knew that the goods or services were from another supplier. 
  • When invoicing your customer, you show the disbursement costs separately on your invoice. 
  • You pass on the exact amount of each cost to your customer when you invoice them. 
  • When you invoice your customer – the goods and services you paid for are in addition to the cost of your services. 

Examples of disbursements include: 

  • Business-related books requested by a client. 
  • Website hosting package purchased on the client’s behalf. 
  • A solicitor paying stamp duty on a client’s behalf. 
  • Paying land registry fees on your client’s behalf when purchasing a property. 
  • A funeral agent buying funeral-related flowers for a client. 


Quick Point- disbursements are also excluded from your taxable turnover when computing your revenue in line with the mandatory VAT registration threshold. 


What is a recharge? Examples of Recharges 

Recharge is a cost that your business incurs in the provision of your goods or services to your customers and are deemed to form part of your overall service. 

These costs should be invoiced to customers including VAT on sales invoices – whether you paid VAT on them or not. 

Some HMRC examples of recharge expenses include: 

  • Mileage costs. 
  • Flight costs: if you buy a plane ticket to go visit a client or to travel to a job, you must charge VAT when you recharge the cost to your client. 
  • Postage costs: when recharging postage costs incurred when sending letters to your customers, you must add VAT on them. 
  • A bank transfer fee: even though bank fees are exempt from VAT, if you recharge your customer for the amount paid when transferring money from your business account to their account – you must charge VAT. 

Implications for VAT (When and how to charge VAT) – Disbursement vs Recharge 

The treatment of disbursements and recharged expenses is a common cause of VAT errors. To avoid falling into VAT pitfalls, it is important to remember: 

  • If you are selling a standard-rated product or service and you incurred expenses for your business (recharge expense), you must charge VAT (at 20%) on the expenses that you are charging to your client.  
  • If you incurred a cost on behalf of your client (disbursement), that you need to pass over to them, you must pass the gross cost over to your client without charging VAT. 

How do I show disbursements and recharges on my invoices? With Examples 

You must itemise disbursements separately on your VAT invoice if you exclude them from the VAT calculations. 

An example of an invoice – disbursements and recharges

Garry, a funeral agent based in Edinburgh, does three-day work for a client in London. He visits the client’s premises to discuss the project and stays in a hotel. Garry also agrees to purchase flowers from a different flower provider on behalf of the client. 

The consultant and the client agree on the following fees: 



Agent’s work 


£3,000 plus VAT 
Three-night hotel costs 


£600 plus VAT 
Agent’s travelling expenses 


£300 plus VAT 
Flowers bought on the client’s behalf 




The invoice would include something like this: 




Net Amount 




Gross amount 

Three days business Consultancy 


£1000 per day £3000  £600 £3600 
Three-night hotel costs (Recharged expense) 


£200 per day £600 £120 £720 
Agent’s travelling expenses (Recharged expense) 


 £300 £60 £360 

2 Funeral flowers arrangement (Disbursement) 


£100 per flower arrangement £200 N/A £200 


 £4100 £780 £4880 


The £600 hotel stay costs and £300 travel expenses that Garry recharges to the client are not a disbursement, so he must charge VAT on them. However, the cost of the flower arrangement is a disbursement and can be excluded from the VAT calculation. 

When to reclaim (or not claim) VAT 

You can claim back any VAT you incurred on items supplied to your business, even if you passed these costs on to your customers as recharges. Your VAT-registered customers can also claim back the VAT you charged them. 

However, you cannot claim the VAT back if the goods or services were supplied to your customer, and you treated this as a disbursement when you invoiced your customer and did not charge VAT. Your customer may also be unable to claim back the VAT if they don’t have a valid VAT invoice for the goods or services. 

It is worth bearing in mind that to claim back the VAT on costs and expenses passed to your clients as recharges, you will need a valid VAT invoice or receipt. 

Records you need to keep for VAT 

It is important to keep evidence – If you pass on any disbursements to your customers. You may keep order forms and invoices to show HMRC that you were entitled to leave the items out of the VAT calculation when you invoiced your customers. 

Further Guidance? 

If you still have questions on the difference between recharge expenses and disbursements, and when you should charge VAT on the costs, contact us for clarification. 


more tips

Can You Claim Food as a Business Expense?

The golden rule when claiming business expenses is that the cost must be “wholly and exclusively” for business purposes. So, where do you stand when it comes to food and drink? After all, everyone needs these things to survive. When does it become an allowable expense? Read on to find out when your business can claim food and drink as an expense.

Self-Employed National Insurance Class 2 and Class 4 Rates

If you are sixteen and over, self-employed (sole trader or in a partnership) and making a profit befitting the ‘small profits threshold’, you are liable to pay national insurance.

Key UK Personal Tax Year Dates & Deadlines 2021/2022

Are deadlines creeping up on you? Spondoo is here to ensure you keep on top of things and take control again. These are the important dates you should take note of.

How To Set Up A Limited Company 

A Step-by-Step Guide  This is an easy-to-understand, step-by-step guide, to opening a successful limited company. But before we dive in, let’s check the legality surrounding it. 

Accountants in Haslemere, Surrey

We are qualified accountants providing personal and professional services for start-ups, established companies and individuals in and around the Halsemere area in Surrey. With the rise in technology, we have embraced the digitisation of accounting using efficient digital accounting tools to offer reliable services to our customers. Our goal remains to get our clients the best accounting and taxation services at the most affordable rates.

Onsite Canteen and Lunch Vouchers - Are They Taxable?

The provision of food and drink to an employee by their employer is a lovely thing to do. Eventually, it promotes teamwork, loyalty, a sense of belonging and even improves productivity. Taking it at face value makes it look like a simple act of kindness. However, unless it is done correctly, it can cause tax and national insurance compliance issues for the employer.
1 2 3 40
Information provided on the site is merely guidance that may change in line with UK law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo is a trading name for Accounting SQL Limited, authorised & license accounting firm under the Institute of Financial Accountants.
© Copyright 2023 - Spondoo - All Rights Reserved
How, can we help?
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram