- Disbursements vs. Recharges: The update explains the distinction between disbursements and recharges, emphasizing that disbursements do not incur VAT while recharges do. It highlights the importance of correctly identifying and handling these transactions to minimize irrecoverable VAT.
- Conditions for Disbursements: There are eight specific conditions that must be met for a payment to be treated as a disbursement, including acting as an agent, the client using the goods or services, and the amount recovered being exactly the same as paid.
- Examples and Case Studies: The document provides practical examples and case studies, such as Alice’s accountancy practice, to illustrate how disbursements work in real-life scenarios and the potential VAT implications.
- HMRC Focus and Legal Precedents: HMRC tends to focus on whether the supply is genuinely made to the client rather than the agent. The document references legal cases that have shaped the understanding and application of disbursements in VAT law.
- Practical Advice and Record-Keeping: Emphasizes the importance of maintaining excellent records and clear invoicing to support disbursement treatment. It also advises on what to do if all conditions for disbursements cannot be met, leading to the need for recharges instead.
Source CJMTax
