VAT on Disbursements & Reimbursements
A person may incur expenses and then recover these expenses from another party. The VAT treatment of the subsequent recovery of expenses depend whether recovery is an amount to a “disbursement” or “reimbursement”.
A disbursement of expenses falls outside scope of vat and while reimbursement of expenses is within the scope of vat and it is subject to standard rated.
For disbursement or reimbursed to differentiate we have to see the company has acted as agent or principal. If the company acted as agent then it is disbursement and it is out of scope of vat. And if the company acted as principal then it is reimbursement.
Factors determining for Disbursement
Following are the points which are considered as disbursement
- The other party is receipt of goods
- The other party is responsible for payment to the supplier
- The supplier tax invoice to the other party directly
- The other party has authorized the person to make payment on its behalf
- The payment is shown on the invoice and the person can claim the same amount
Factors determining for Reimbursement
Following are the points which are considered as reimbursement
- The person has contacted for supply of goods and services in own name and capacity
- The person has received the goods or services from the supplier directly
- The person has received the invoice from supplier and he will make payment against the invoice.
- Related to the goods the person should own the goods prior to making supply to the other party.