Supply and consideration ― disbursements

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Supply and consideration ― disbursements
  • What is a disbursement?
  • What are the conditions for a payment to be a disbursement?
  • What kinds of transactions are not disbursements?
  • Disbursements in particular circumstances
  • Practical points ― disbursements

Supply and consideration ― disbursements

This guidance note examines the topic of disbursements for VAT purposes.

For an overview of supply and consideration generally, see the Supply and consideration ― overview guidance note.

For in depth commentary on the legislation and case law in this area, see De Voil Indirect Tax Service V3.159.

What is a disbursement?

If certain conditions are met, payments that are made by a business to a third party can be excluded when calculating VAT due on the business’s supplies to its customers. These payments are known as disbursements.

To put it another way, a disbursement is money paid by an agent to a third party on behalf of its client whilst acting as the client’s agent.

By way of example, a business may provide standard-rated services to its customer for £100 (excluding VAT). It may also pay a third party £10 by way of a disbursement on behalf of its customer. The business would charge VAT of £20 (£100 x 20%) on its services but it will not be obliged to include the £10 disbursement reimbursed by its customer within the value of its supply (provided the necessary conditions are met).

It can be advantageous from a VAT perspective to treat a payment as a disbursement if the third party has not charged VAT on the goods / services and the customer is not able to recover the VAT it incurs.

To the extent that a business treats a cost paid to a third party as a disbursement for VAT purposes, it won’t be entitled to recover any VAT ch

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