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Disbursement or not

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Good morning,

My company incurs fees for gardening works which we pass on at 50% to another business along with some other costs jointly incurred.

The gardening fees don't have VAT as the gardener is not VAT registered. We invoice across the total of all the shared costs with VAT.

We have been asked to invoice across the costs which don't have VAT on a seperate invoice and charge across as a disbursement with no VAT.

Does anyone know if this is correct or if we should continue to bill back their 50% with VAT chargeable?

Thanks for your time.

Replies (12)

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VAT
By Jason Croke
01st Jul 2022 11:12

My starting point with these queries is that it is not a disbursement....then try and convince myself I am wrong.

It all comes down to the contracts, why are you paying for the gardening? Is it your responsibility? Why are you recharging it instead of the other party engaging with the gardener themselves?

HMRC tightly define what a disbursement is, their guidance can be very confusing as the language used often looks like everything can be a disbursement bit in reality only a very narrow set of scenarios fit the definitions, hence contracts and who is doing what for whom comes into play.

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By Tax Dragon
01st Jul 2022 11:23

Can something be a disbursement only if there is a paid-for supply to which it attaches? Last bullet point on the list Wanderer pointed to: "the goods and services you paid for are in addition to the cost of your own services"... if there are no "own services" and the cost of them is therefore £nil...

This feels like the VAT equivalent of the "was something taxed if there wasn't any tax?" type question that direct tax legislation sometimes leaves tax-other-than-VAT bods asking.

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By rmillaree
01st Jul 2022 12:02

Good point tax dragon - intesting to see what those in the knows think here if the op is not providing any services whatsoever to the "third pary" - but these items might fail one of the disbursement tests.

SarahB66
Can you advise if you provide vatable services to this third party ignoring these disbursements ?
Can you also confirm all of these costs are passed through at the exact cost price to you - i would say if agreement is to split bills 50/50 and you get reimbursed exactly 50% - that would be counting as the cost price here.

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Replying to rmillaree:
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By Tax Dragon
01st Jul 2022 12:19

Say you and I went for a meal and we split the bill. I put the whole thing on my credit card and you give me cash. I haven't supplied you with anything and I don't give you a receipt for the cash. Far less bill you for it.

Now I accept that, in a business context, you want a better paper trail and so OP's co 'invoices' the other company to provide that trail. But if it's just splitting a bill as we did at the Happy Inn... is a (VAT) invoice really the best companies have got? Just seems so OTT to me. And you end up with issues (that really shouldn't exist) such as the OP here has.

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Replying to Tax Dragon:
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By Hugo Fair
01st Jul 2022 13:33

Hence presumably your earlier question (which remains unanswered):
"Can something be a disbursement only if there is a paid-for supply to which it attaches?"

If I travel to a client then my 're-charge' of the train ticket isn't a reimbursement because (under my T&Cs) it is simply one of many potential expenses for which I raise a charge as part of my service. The amount may/not be a direct equivalent of what I paid for the ticket, but as part of my supply of services it is VATable.

Whereas if I make the same journey but this time only to see that client who just wants to discuss me speaking at some conference, I probably wouldn't charge anything for my travel costs. But if he offered to reimburse me (for some or all of the cost of the ticket), I wouldn't feel the need to invoice him let alone charge VAT on top - and obviously wouldn't then treat the original cost as a business expense.

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Replying to Tax Dragon:
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By Tax Dragon
01st Jul 2022 13:51

Tax Dragon wrote:

Just seems so OTT to me.

Oh... @Jason (and other VAT bods)... that means "over the top"... not "option to tax".

Sorry for any confusion.

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Replying to Tax Dragon:
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By Winnie Wiggleroom
01st Jul 2022 16:12

Tax Dragon wrote:

Say you and I went for a meal and we split the bill. at the Happy Inn...

Hey Big Spender

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By jonharris999
01st Jul 2022 17:48

Hang on, who was Drags inviting out there?

Oh...split the bill...not an invite at all. I was excited.

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Replying to rmillaree:
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By SarahB66
01st Jul 2022 13:32

rmillaree wrote:

Good point tax dragon - intesting to see what those in the knows think here if the op is not providing any services whatsoever to the "third pary" - but these items might fail one of the disbursement tests.

SarahB66
Can you advise if you provide vatable services to this third party ignoring these disbursements ?
Can you also confirm all of these costs are passed through at the exact cost price to you - i would say if agreement is to split bills 50/50 and you get reimbursed exactly 50% - that would be counting as the cost price here.

Thanks - there are no services just a straight 50/50 split on several shared overhead costs. We are billed by the suppliers and in turn invoice out half the cost value.

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RLI
By lionofludesch
01st Jul 2022 19:06

Is this other business VAT registered and fully taxable?

If yes, what's the problem?

If no, why don't they pay the gardener and bill you 50%?

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Replying to lionofludesch:
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By Tax Dragon
03rd Jul 2022 06:29

Why does something that is purely an expense have to come into either company's turnover at all?

(Though having said that, why can't the gardener bill half to each company? Hmmm.... maybe light is dawning.... have I answered my own question? My Happy Inn analogy isn't fully analogous, is it? The analogy would be that I bought a side of chips and then sold half to my mealtime companion.... and that wouldn't be a disbursement, would it?... Similarly, nor is the gardener's fee.)

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