What is a disbursement?

Neil Warren highlights the important differences between an expense recharged by a supplier to a client for his own costs and a genuine disbursement that is not subject to VAT

The idea for this article was prompted by a recent First-tier Tribunal case partly won by the taxpayer about whether a car repair business could treat recharges of MoT testing fees to vehicle owners as a disbursement with no VAT charged on sales invoices, or whether the deficiencies in his invoicing procedures meant he was liable to account for VAT on the payments made by customers. The issue of VAT and disbursements is one that many clients find confusing and they often think (incorrectly) that a recharge of their own business expenses (e.g. mileage or rail fares) is a disbursement. I’ll consider this issue and also review the case of Ellon Car Clinic Ltd (TC5813) about the MoT fees.