Disbursement for VAT

LynWest

Hi everyone, hope you are all well.

I have a client who is a landlord of a commercial property. They have opted to tax and therefore VAT is applicable. They charge the tenant £400 per month to cover the electricity. I would have thought that VAT was due on the £400 per month as it is not the actual bill amount. It is possible that they could be making a profit on it from HMRC's point of view.

However, they say that the £400 is actually just covering the cost. They reconcile the bill quarterly when it comes in and tell the client that they owe so much or advise the client that they are so much in credit.

If anyone could let me have their opinion on whether it is a true disbursement or not would be much appreciated.

KernowAccountant

Based on the facts presented, the payments are NOT disbursements for VAT purposes.