VAT on disbursements and reimbursements

There are number of considerations for determining if the recovery is a 'disbursement' (out of scope of VAT) or 'reimbursement' (within scope of VAT). These are differentiated as follows:

Disbursement: the recovery of a payment made as an agent on behalf of another person, with the supply taking place directly between the supplier and the other person.

Reimbursement: the recovery of expenses incurred as a principal (i.e. the supply took place directly between the supplier and the person recovering the cost).

The following principles will help you to determine whether the recovery of an expense from another is a disbursement or a reimbursement:

Disbursements (outside the scope of VAT)

• The other party (from who you are recovering such expenses) should be the recipient of the goods or services;
• The other party should be responsible for making the payment to the supplier;
• The other party should have received an invoice or tax invoice in their own name from the supplier;
• The other party should have authorized you to make the payment on his behalf;
• The goods or services paid for should clearly be additional to the supplies you make to the other party;
• The payment should separately be shown on the invoice and you should recover the exact amount paid to the supplier, without a mark-up.

• Reimbursements (subject to VAT)

• You should have contracted for the supply of goods or services in your own name and capacity;
• You should have received the goods or services from the supplier;
• The supplier should have issued the invoice in your name;
• You have the legal obligation to make payment to the supplier;
• In case of goods, you should own the goods prior to making any onward supply.