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  • Writer's pictureMike Evans

Re-billing Expenses

Updated: Feb 7, 2020

Advice on passing your expenses onto your client

Re-billing expenses might seem like a simple task but it’s an area that we commonly see mistakes especially where VAT is concerned. The rules around applying VAT to re-billed expenses are very different to the normal VAT rules and it’s not always easy to understand when VAT should be applied. In most B2B scenarios, both parties are VAT registered so the VAT treatment doesn’t affect the actual cost to either party but there are still rules that need to be followed to get your VAT correct.

Not VAT registered

If you’re not VAT registered then the rules for re-billing expenses are simple. You should never charge VAT and if you’ve paid VAT on an expense you’d just charge the gross amount (the full amount you paid including the VAT) to the client without separating the VAT.

VAT registered business

If you’re VAT registered, you should charge VAT on almost all re-billed expenses regardless of whether the expenses themselves have VAT on them unless they are a disbursement (see below). So even expenses like train tickets or postage costs that might not have VAT on would need to be re-billed with 20% VAT added. Mileage is another area where we see lots of issues because the business might agree to different rates with different clients and as they won’t be claiming 20% VAT in their own business, they don’t charge VAT to the client but re-billed mileage should always have 20% VAT added.

So for example, if you paid £100 for a train ticket (with 0% VAT) to a client location and paid £100 for a hotel for the night (including 20% VAT) and wanted to re-bill these expenses to the client it would look like this:

  • Travel expenses - £100 + £20 vat = £120 total

  • Accommodation expenses - £83.33 + £16.67 = £100 total

In this example, you paid £200 in total but recharge £220 but the £20 extra will need to be paid to HMRC on your next VAT return and the end client will recover the £20 from HMRC on their next return so there is no overall effect to any party. In the rare scenario when the end client is not VAT registered, they might question the extra VAT charge but you can direct them to the HMRC legislation here.


Disbursements are client expenses that you’ve paid for on their behalf and can be re-billed to the client without VAT even if you’re VAT registered. So any expense that you incur while providing services for the client is not a disbursement, the client needs to be liable for the expense and you will need to simply act as an agent for the client by paying the expense. A common example of a disbursement that many of us encounter is when we use a solicitor to buy a house. If there is stamp duty due, the solicitor will usually pay it on your behalf, then re-bill it to you with no VAT because it’s not an expense that arose due to their work, it arose because you’re buying the property and therefore, you are liable for paying the stamp duty.

We’ve added the full criteria for a disbursement below but it’s worth noting that if the expense had VAT when you paid it, you still re-bill the VAT regardless of whether it meets the criteria for being a disbursement.

The HMRC legislation on disbursements says that to treat a payment to a third party as a disbursement for VAT purposes all of the following conditions must be met:

  • You acted as the agent of your client when you paid the third party;

  • Your client received and used the goods or services provided by the third party;

  • Your client was responsible for paying the third party;

  • 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 additional to the supplies which you make to your client.

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