If you pay for something on behalf of your customer and then invoice it to your customer you may be able to treat it as a disbursement. This will be an advantage if the supplier doesn’t charge VAT or if the customer can’t reclaim VAT.
When invoicing disbursements to your customers you don’t add VAT and you can’t claim VAT on the purchase because you are acting as an agent.
A disbursement must meet 8 conditions. VAT: costs or disbursements passed to customers – GOV.UK
Most business purchases are expenses, not disbursements, and you should add VAT to the amount that you invoice to your customer. You can also reclaim any VAT that you pay your supplier. The amount you charge your customer is a commercial decision so it may be the cost, or the cost plus a mark up, or any other amount that you agree.
Some examples of costs that are usually recharges and not disbursements:
- Train ticket to visit your client or to travel as part of their job. You should add VAT to any recharge because the flight is for you and not the client.
- If recharging postage to your customers you should add VAT even though postage is usually exempt.
The most common recharge we see is mileage. You can claim the standard mileage allowance (usually 45p but see mileage rates: https://minervaaccountants.co.uk/tax-tip/tax-tip-38/) and reclaim any VAT on the fuel element. When recharging this to the client you would add VAT to the rate (which may be 45p or something else) that you have agree with them