This article explains VAT treatment when rebilling professional expenses to your client.
- Distinguish professional expenses from disbursements.
- Rebill net or gross amounts depending on VAT recoverability.
- VAT on rebilled expenses follows standard invoicing rules.
Professional expenses vs disbursements: what's the difference?
Business expenses are costs you have to pay to complete a job, like travel, meals, or phone bills. You pay for these yourself and then charge them to your client, which counts as additional income and is taxed like your other earnings.
Keep in mind, charging these expenses to your client can affect your tax status and thresholds, such as VAT or micro-business rules. Sometimes, extra taxes and social charges apply if your tax system doesn’t allow you to deduct these costs.
Out-of-pocket expenses, on the other hand, are costs you pay on behalf of your client, for example, if you buy something directly in their name. These expenses are reimbursed to you without VAT and do not count as extra income, so they do not affect your tax thresholds.
To issue such reimbursements properly, you must get written approval from your client, have the purchase invoiced to them, and keep the receipts.
In practice, these out-of-pocket expenses are less common since there are strict rules about when they can be used.
Which amount to rebill: net or gross?
Whether you use the amount before tax (excluding VAT) or including tax depends on your VAT status.
If you benefit from a VAT exemption, you cannot reclaim VAT on your expenses, so you must re-invoice the full amount including VAT.
If you are subject to VAT and can claim it back through your VAT return, you should re-invoice only the amount excluding tax.
The applicable rules depend on the country where your business operates.
How does VAT apply when rebilling professional expenses?
When you re-invoice professional expenses, they follow the same VAT rules as your service fees.
If your fees are subject to VAT, then the re-invoiced expenses will also be subject to VAT at the same rate—regardless of the VAT rate originally applied to the expenses.
For example, if you have a catering expense with a 10% VAT (€100 excluding VAT + €10 VAT), and that VAT is not deductible, you will re-invoice the full amount including VAT (€110).
On top of that, you will charge VAT on this total at your service rate (e.g., 20%), resulting in a total invoice of €132 (€110 + €22 VAT).