VAT on disbursements
There is an important difference between expenses you incur while providing a service to your customer (e.g., travel costs), and costs known as ‘disbursements’, which you pay on behalf of your customer (e.g., MOT charge).
If your business is VAT registered, you must add VAT to the amount of any expenses recharged to your customer, but you should not add VAT to genuine disbursements, where the customer remains responsible for the fee.
There has been some confusion about whether the cost of online property searches should be treated as disbursements by solicitors and conveyancers. HMRC’s position is that if the information obtained in the search is passed on to the customer without comment or further work, the search fee can be treated as a disbursement. However, if the search information is incorporated into a report or used to provide advice, the fee is an expense on which VAT must be charged to the customer.
This distinction could affect all sorts of businesses which undertake online searches on behalf of customers. We can review your systems to check that the correct VAT treatment is being applied to costs you incur.