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How should I accurately record disbursement payments and receipts to ensure they are not captured as regular income/expenses?

Under UK HMRC guidance, certain costs which are passed on to customers can be treated as disbursements. If I record an purchase in the usual way (e.g. website domain registration fee), it goes into my balance sheet as a business expense. Similarly, when I charge that cost back to the customer, the income gets recorded as "Income" and affects turnover. If these items are true disbursements under UK HMRC rules, the initial purchase cost should not categorised as an expense and the reimbursement of the cost by the customer should not be categorised as part of turnover. It is just a pass-through cost. Is there any way in QuickBooks to accommodate this? Note: this is a specific HMRC meaning of the word "disbursement" and not simply a general payment to an employee or customer. See https://www.gov.uk/vat-costs-or-disbursements-passed-to-customers

Best answer 02-06-2019 07:06 PM

Accepted Solutions
Not applicable

The link you provided is only in reference to VAT. The HM...

The link you provided is only in reference to VAT. The HMRC webpage does not discuss the presentation of these amount on either the Balance Sheet or Income Statement, only that for your reimbursable expenditures (payment that you make and then charge your customer for) you cannot claim any VAT paid as a tax credit, and you cannot charge VAT for those same amounts to your client.

For the set-up it would be best to use a Balance Sheet account, as that it is your intention to charge your customer for all of these amounts and not record and not have them factored into your net income calculation. Create an 'Other Current Asset' account named as 'Disbursements Receivable' for amounts you pay that you have yet to charge a customer. (Please double check with a UK CA as to whether or not this is the preferred treatment, they may still say to use either an income or expense account)

 

Most of the actual accounting work is best handled through the use of items and tax items/codes.

Here I am not familiar with UK VAT codes that may be available to you preset on UK QuickBooks. However, the idea is to create / use a sales tax item and sales tax code for your disbursement purchases so that you record the VAT you pay as an addition part of the cost of the disbursements you make. This could require creating a dummy vendor as a tax agency, in which you would leave the 'Tax tax on purchases separately to' blank, and creating duplicate of your sale tax item 'VAT on purchases' as VATD - VAT on Disbursements, and a new sale tax code "D" as Taxable linked to the sale tax item VATD for purchases (leave sales as blank)

 

For the disbursement purchases you make, you will need to create an Item in your Items List called 'Disbursements' as an other charge. You can use one or create as many needed with variations to the name (Materials, Fuel, & etc -Disbursements)  to add detail to the 'Bills' you enter for supplier purchases or Invoices your create to customers. Check the item as being a reimbursable charge, you will reference the 'Disbursements Receivable' account for both Bills (purchase tax code D) and Invoices (tax code 'E' for exempt).

This way when you use the Enter Bill or Write cheques function to record disbursements you will use the 'Items' tab and select the 'Disbursements' items with the tax code D, so that the VAT you pay is calculated and entered as an additional part of the cost, and will not be claimed as a tax credit. (any other amounts not disbursements can be entered to the accounts on the expenses tab)

And when you Invoice your client, you will again use the same Disbursement items sales tax code E so that no VAT is charged on those items, VAT will only be calculated on the other sales/service you have provided items

 

6 REPLIES 6
Not applicable

The link you provided is only in reference to VAT. The HM...

The link you provided is only in reference to VAT. The HMRC webpage does not discuss the presentation of these amount on either the Balance Sheet or Income Statement, only that for your reimbursable expenditures (payment that you make and then charge your customer for) you cannot claim any VAT paid as a tax credit, and you cannot charge VAT for those same amounts to your client.

For the set-up it would be best to use a Balance Sheet account, as that it is your intention to charge your customer for all of these amounts and not record and not have them factored into your net income calculation. Create an 'Other Current Asset' account named as 'Disbursements Receivable' for amounts you pay that you have yet to charge a customer. (Please double check with a UK CA as to whether or not this is the preferred treatment, they may still say to use either an income or expense account)

 

Most of the actual accounting work is best handled through the use of items and tax items/codes.

Here I am not familiar with UK VAT codes that may be available to you preset on UK QuickBooks. However, the idea is to create / use a sales tax item and sales tax code for your disbursement purchases so that you record the VAT you pay as an addition part of the cost of the disbursements you make. This could require creating a dummy vendor as a tax agency, in which you would leave the 'Tax tax on purchases separately to' blank, and creating duplicate of your sale tax item 'VAT on purchases' as VATD - VAT on Disbursements, and a new sale tax code "D" as Taxable linked to the sale tax item VATD for purchases (leave sales as blank)

 

For the disbursement purchases you make, you will need to create an Item in your Items List called 'Disbursements' as an other charge. You can use one or create as many needed with variations to the name (Materials, Fuel, & etc -Disbursements)  to add detail to the 'Bills' you enter for supplier purchases or Invoices your create to customers. Check the item as being a reimbursable charge, you will reference the 'Disbursements Receivable' account for both Bills (purchase tax code D) and Invoices (tax code 'E' for exempt).

This way when you use the Enter Bill or Write cheques function to record disbursements you will use the 'Items' tab and select the 'Disbursements' items with the tax code D, so that the VAT you pay is calculated and entered as an additional part of the cost, and will not be claimed as a tax credit. (any other amounts not disbursements can be entered to the accounts on the expenses tab)

And when you Invoice your client, you will again use the same Disbursement items sales tax code E so that no VAT is charged on those items, VAT will only be calculated on the other sales/service you have provided items

 

Highlighted
Super Contributor **

You have almost got it right. The referred article is say...

You have almost got it right. The referred article is saying (if you read some of the examples, which do make it clearer) that if you have consent of your customer (client) to recharge expenses, then you book the entire expense to purchases and then the entire cost (including VAT where charged) to the disbursement element on your invoice. The important element is that if VAT is charged in the original cost, then you do NOT reclaim the VAT but you recharge it to your customer included in the total cost.
Experienced Member

Thanks mollcons. I'm OK with the HMRC guidance - the issu...

Thanks mollcons. I'm OK with the HMRC guidance - the issue is just on recording it accurately in Quickbooks. Actually, I'm on the VAT Flat-rate scheme so (a) the purchases will be logged as VAT code O (outside the cope of VAT) and (b) I need to ensure the charge-back to my client is NOT included as turnover as I'll be paying my flat rate VAT on it. I could simply use VAT code O on my client's invoice to ensure this amount does not get included in my calculation of total turnover for VAT flat-rate purposes, but the item cost to me will still get included as a business expense. DMKmb's response sounds right but I'm struggling to translate it into "key strokes". I tried setting up an 'Other Current Asset' account named as 'Disbursements Receivable' to record the initial purchase under but the system does not then allow me to tag it as a billable expense to charge back. I therefore can;t see how I then bill the cost to my client. I'm struggling here....
Not applicable

On your purchase entry (bill/cheque) all you should have...

On your purchase entry (bill/cheque) all you should have to do is entry you customers name/job under the 'Customer: Job' column and then put a check mark in the box under the billable column. If the company preferences are set correctly, the prompt to assigned billable expense, or amounts should automatically pop-up when you go to create an invoice for the client.

Though it looks like you will have to over-write and add on the VAT paid on the purchase to the amount charged to the client on the invoices you create.  The alternative would be to forgo the alternate tax set-up and just enter the reimbursable purchase items you enter on bills/cheques as including the amount of VAT and as a non-taxable item. This way when you go to create a customer invoice the total amount will be entered, and you will not have to go back and double check the initial purchase, and VAT charged.
Experienced Member

Thanks for the help. My problem was caused by not using t...

Thanks for the help. My problem was caused by not using the "Items" tab when recording the initial purchase. All sorted now. After charging back the client, I checked my account details; the initial charge does not show up as an expense item and the income received to pay back for the item does not appear as turnover for my flat-rate VAT calculation. The "Other Current Asset" account shows the amount going out (for the purchase) and then the same amount coming in to balance the account (for the reimbursement). Excellent!
Not applicable

Woo Hoo!! Have a good one.

Woo Hoo!! Have a good one.