The Challenge
"They were booking flights and hotels in their own company's name, then passing the cost straight on to customers with no VAT at all — treating it as a simple pass-through expense rather than something that needed tax on it."
While reviewing the client’s invoices, we spotted that flight and hotel costs were being recharged to customers as zero-VAT “disbursements,” even though the bookings and invoices were made in the client’s own name, not the customer’s. Under FTA Public Clarification VATP013, that distinction matters. A cost can only be treated as a VAT-free disbursement when the client pays it strictly as the customer’s agent, with the supplier’s invoice addressed to the customer. Here, the client had paid as the principal, which meant the recharge was a reimbursement and 5% VAT should have applied.
Our Approach
- Reviewed the invoicing chain — checked whose name each flight and hotel booking was actually invoiced in.
- Applied the VATP013 test — separated genuine agent-paid disbursements from principal-paid reimbursements.
- Corrected the treatment going forward — rebuilt the invoicing so recharges now carry 5% VAT, while true disbursements stayed VAT-free.
Getting this distinction right matters because disbursements and reimbursements look identical on an invoice but carry very different VAT treatment, and the FTA tests it against who the underlying supplier actually billed.
The Result
We worked out the past shortfall on the wrongly zero-rated recharges so the client could correct it through a voluntary disclosure to the FTA, addressing the underpaid VAT before it was flagged in an audit and avoiding penalties.
The Takeaway
"A disbursement isn't just about who ends up paying — it's about whose name is on the original invoice. Get that wrong and VAT-free recharges become a liability."
