Recharge vs. Disbursement

Expenses Nov 22, 2012

When you pass on costs onto clients, it is important to understand if those costs should be treated as a recharge or a disbursement. Their VAT treatment is indeed quite different.


In this situation it's the customer, not you, who buys and receives the goods or services - you're acting as their agent. Before you treat a payment as a disbursement for VAT purposes, you'll need to make sure all the following apply:

  • you paid the supplier on your customer's behalf
  • your customer received or had the benefit of the goods or services (this condition usually prevents the agent’s own travelling and subsistence expenses, phone bills, postage, and other costs being treated as disbursements for VAT purposes)
  • it was your customer's responsibility to pay for products
  • your customer knew that those products were from another supplier
  • you show the costs separately on your invoice
  • you pass on the exact amount of each cost to your customer

It's usually only an advantage to treat a payment as a disbursement for VAT purposes if the supplier didn't charge VAT on it, or if your customer can't reclaim the VAT. In that case you can pass on those costs as is, without adding any VAT.


Any costs that your business incurs itself while supplying goods or services to customers are not disbursements for VAT purposes. It's you, and not your customer, who purchases the goods or services, which are supplied to and used by your 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 then they're known as 'recharges', and not disbursements, for VAT.

You'll 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 or some postage costs you incur when you send letters to your customers. These are normal business costs, and you must add VAT if you recharge them.


Franck Sidon

With over 15 years of experience as a Managing Director at TaxAssist Accountants, I have helped thousands of businesses and individuals achieve their financial goals and optimize their tax efficiency.