Understanding the difference between a disbursement and an expense!

Gary Hughes

Special Projects Manager

For VAT registered businesses it is important to distinguish between an expense incurred in the course of the job and recharged to the end client, and a genuine disbursement which is the clients responsibility but initially paid by the business.

What is a disbursement?

The key issue in deciding whether the item is an expense or a disbursement is to consider who the expense belongs to.

By way of an example, a solicitor transacting on a house purchase will incur various costs on behalf of his client, such as search fees, land registry fees and stamp duty land tax. All these expenses are the responsibility of the purchaser, so are a genuine disbursement where the solicitor shouldn’t charge VAT on his invoice to the client provided certain procedures are followed, for example:

  • All relevant costs must belong to the end client.
  • The end client must be responsible for paying the third party, and has authorised the business to make payment on his behalf.
  • The payments must be itemised separately on the invoice, and only the exact amount paid to the third parties be recovered.

What is an expense?

Let’s assume a management consultant is engaged to carry out a piece of work away from home. She purchases a return train ticket, purchases food for subsistence and pays for accommodation. It is agreed with the end client these will all be recharged.

In this situation she should charge VAT on the travel, food and accommodation expense, as these are the costs of the consultant and not the client. Effectively the costs recharged are an extension to her own consultancy fee.

What can I take away?

When considering the VAT treatment of an expense recharge or a disbursement the first point of call is to consider who bears ultimately responsibility for the costs. If it is the end client then it is likely to be a disbursement where VAT shouldn’t be charged, but if it is the business’s responsibility then it is likely VAT should be charged

If you need any further support regarding VAT disbursements or any other tax issues our specialist experts are here to help you. Please contact the team on 0161 476 8276 or email

Posted 27th September 2017

Reviewed 12th December 2018

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