How to invoice for a disbursement

[customerise]

Hello,

I am setting up a new bsuiness where people work on our behalf and incur expenses that we repay to them, and then we invoice our client to claim them back. We are VAT registered but I believe that this arrangement is a disbursement and therefore no VAT is claimed or invoiced, is that correct? if so how shuld I reflect this on my invoice to our client? Many thanks in advance for any advice.

[section 44]

doesn't sound like a disbursement

[jpcentral]

Maybe a more detailed explanation would help to determine whether the amounts being claimed are actually disbursements.

I tend to agree with Section 44 that your description doesn't sound as if they are disbursements.

[customerise]

This is a mystery shopping business, the expenses I am talking about are the entrance fees to attractions and cost of refreshments incurred by the shoppers (not any fees the shoppers are earning). They will not be reclaiming any VAT on these (although VAT is included in some of the entrance fees). The shoppers pay for the entrance fee and the refreshments themselves, we repay the the shoppers and in turn invoice our clinet for repayment of the direct expenses to us. If they aren't disbursements can you advise how I should reflect them on the invoices to the clinet? Thank you

[jpcentral]

This is what HMRC say about disbursements:

"When you make payments on behalf of your customers, for goods or services received and used by them, you might be able to treat these payments as ‘disbursements’ for VAT purposes."

The critical wording in that is, "..... used by them". In the description you gave, the goods/services are not being used by your customer. They are not, therefore, disbursements. They are costs incurred in operating the service you provide and, as such, are subject to VAT. You can call them reimbursements but they are still subject to VAT.

You can invoice for them virtually any way that you like but, if you want to identify them, word your invoice along the lines of:

Mystery Shopper service carried out as per instruction received - £x

Agreed reimbursements:

Entrance fee - £y

Refreshments - £z

Total invoice = £x + £y + £z = £M

VAT at 205 on £M =

[section 44]

as I said:

doesn't sound like a disbursement

... sounds more like in quantifying the payments that you make to these people you take into account certain expenses that they have incurred