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