A. This a very common query and misconceptions about the VAT treatment of recharged expenses are rife.
The mileage costs do not qualify as a disbursement for VAT purposes. Instead they are a cost component, incurred by the client in making the supply of the cleaning services and so must be included in the value of those supplies when VAT is calculated and charged at the same rate as the main supply.
For a recharge to qualify as a disbursement and be outside the scope of VAT, the following conditions (reproduced in s.25 VAT Notice 700) should be met:
- you acted as the agent of your client when you paid the third party;
- your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, phone bills, postage, and other costs being treated as disbursements for VAT purposes);
- your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client);
- your client authorised you to make the payment on their behalf;
- your client knew that the goods or services you paid for would be provided by a third party;
- your outlay will be separately itemised when you invoice your client;
- you recover only the exact amount which you paid to the third party;
- the goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account;
All these conditions must be satisfied before you can treat a payment as a disbursement for VAT purposes.
If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
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