Can I pass on the cost of bank charges such as TT/Faster Payments on to my clients as ‘Disbursements’?
Answer
Recharging the Cost of Bank Charges to Clients
The cost of bank transfers can vary depending on the financial institution that you bank with, the payment method and the payment destination. You can pass the costs that you incur when transferring money electronically on to your clients, however the cost will need to be clearly stated in the firm’s terms and conditions.
It is important that clients are informed of and understand the cost in advance as this will enable them to instruct an alternative firm if they are not agreeable to the cost.
If the client agrees, you must ensure the cost is charged as an additional fee on the bill for VAT purposes even where the firm is charging the same amount as the bank are charging the firm for the service.
Any payment made by the firm to the supplier would not satisfy the definition of a disbursement in the VAT regulations. Firms should not show either the actual charge made by the supplier, or any additional element i.e. administration charges, as a disbursement. (If the latter is done, it is regarded as misleading, and making a secret profit). It should be shown as additional charges and not disbursements, even where the firm is charging the same amount as the bank are charging the firm for the service.
Case Law
In Shuttleworth & Co (LON/94/986A) v HMRC
In Shuttleworth & Co (LON/94/986A) the appellant, a solicitor, arranged for money to be transferred from his client account to the client accounts of other solicitors through CHAPS – the Clearing Houses Automated Payments System. The bank’s exempt charge for this, of £25 per transfer, was recharged by Shuttleworth as a disbursement to the client. The Tribunal agreed with Customs and Excise that the bank supplied its services to the appellant who then used them to make his own supply to the client which should bear VAT.
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HMRC – Disbursements and Recharges
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