The Right Way to Invoice for Expenses

[radish2008]

Not quite as simple if a client expects something different - i.e. in this case they expect to pay the expenses without incurring additional tax. Makes no difference to the baseline at the end of the day, other than HMRC get a little bit more money out of us.

I just need to be sure I'm doing it right before I push the client one way or another.

Then I would push them down the VAT route. I have used disbursements before but only for one off expenses (domain registrations etc.). I'm not sure I'd feel comfortable doing it all the time. Surely they can't be that bothered ? They claim in back after all.

[Spikeh]

I see no problem in providing receipts to show that yourCo has incurred the expense. Freeagent includes an option to include recharged receipts when you create your invoice.

I've had some other advice today regarding this - seems that showing clients receipts is fine as long as there's an invoice for it.

[Spikeh]

Then I would push them down the VAT route. I have used disbursements before but only for one off expenses (domain registrations etc.). I'm not sure I'd feel comfortable doing it all the time. Surely they can't be that bothered ? They claim in back after all.

Well, disbursements are fine if you're purchasing something on behalf of the client (i.e. you're their agent buying something from one of your suppliers on their behalf) and you're simply passing on the cost to them. The length of time you charge clients via a disbursement model has absolutely no relevance or bearing - a disbursement is a disbursement and it's up to you whether asking the client to purchase the service / product themselves would be more efficient, or prone to errors. I have this exact scenario with one of my clients at the moment; I've recommended a domain name to them - which I desperately need to have confirmed before I can do some of the other work I've got in the pipeline - but they refuse to let me register and manage it on their behalf due to some bad experiences in the past. When they do eventually purchase the domain name, I can guarantee they'll set everything up incorrectly and I'll have to undo their mess - but that's their choice, and they'll be charged for that extra work.

Travel is a business expense (which is required in the delivery of your services to the client). Most of the time I haven't charged clients for this, and it's formed part of my daily / hourly rate. However, in this case the client has specifically said they would pay expenses, so I'm not going to argue as it will save me a considerable amount of money over the course of the contract. These business expenses cannot be charged as disbursements, so VAT has to be charged one way or another. I'm just waiting to see if the client is fussy about removing any input VAT before charging them output VAT.

[TheCyclingProgrammer]

Hard not to overthink it when there's conflicting info everywhere

Well, I put forward some suggestions to the agent last night - I'll see what they come back with. Thanks for your responses.

There is no conflicting info about WHAT you charge. What you recharge is between you and the client. You just charge VAT on top of what you bill unless it’s a disbursement in which case the original charge is passed through as is. Travel costs are not disbursements. It’s that simple.

[TheCyclingProgrammer]

Then I would push them down the VAT route. I have used disbursements before but only for one off expenses (domain registrations etc.). I'm not sure I'd feel comfortable doing it all the time. Surely they can't be that bothered ? They claim in back after all.

Ignore the concept of disbursements. It does not apply.

[TheCyclingProgrammer]

I'm just waiting to see if the client is fussy about removing any input VAT before charging them output VAT.

Why wouldn’t you recharge the net cost plus VAT unless you’re seeking to make a profit from your expenses? If you can reclaim the input VAT on your expense then the net cost to you is the amount ex VAT. So that’s what you should recharge if you’re just looking to recover the cost from the client.

Just recharge net plus VAT, give them the receipts to back up the charge and be done with it.

You will recover your costs in full (both personally and as a business) and it will cost the client the same as if they’d paid directly.

There’s no “right” way as such, but if one of my suppliers tried to recharge me the gross instead of the net when we had agreed that expenses would be recharged at cost then I’d tell them to change it.