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How do contractors charge expenses back to the client?

Knowing when to charge expenses to your client can save you a lot of money. In fact, in some situations, failing to bill for expenses you incur as a contractor helping a client can be highly wasteful and overly generous. It is very likely that your client is used to paying for contractors’ expenses, so you would be gaining little competitive advantage by letting your own business absorb the extra costs.

However, you need to charge expenses to the client in the right way, or else there could be unwanted consequences – these include failing to meet VAT and IR35 regulations, which could result in your business having to pay back a significant amount of tax at short notice. Here are four key aspects of charging back expenses that you must be aware of:

1. Charging back expenses for your service

Expenses for situations where you or your business are required must be charged back to the client with VAT included, even if the cost you incur is free of VAT in the first place. The exception to this rule is if you are not VAT registered, which is covered in the next point.

Examples of expenses for matters which require you to make a purchase include:
– Accommodation and meals: if providing a service for your client requires you to pay for overnight accommodation.
– Transport: if working for your client requires you to pay for petrol or buy tickets, such as for rail or air travel.
– Administrative costs: if your service requires you to incur costs such as postage or international charges e.g. for phone calls or bank transfers.

When itemising expenses, make sure they are listed net of VAT before you add VAT yourself – otherwise, the client will be charged VAT twice.

2. Non-VAT registration

Contractors or businesses that are non-VAT registered invoice these service expenses in a different way. In this case, you invoice the total expense you pay, including VAT if this is part of the cost. Therefore, if the expense you incur is VAT-free, you do not need to add VAT to the invoice yourself.

3. IR35 regulations

When itemising expenses, make sure you use a sales invoice – do not use your client’s own internal claim form, because you could be found by HMRC to be in breach of IR35. This is because this method of charging expenses is similar to how an employee would claim expenses. As a result, HMRC could accuse you of working through a limited company purely to avoid the tax and National Insurance contributions other employees are subject to.

4. Charging back expenses incurred on your client’s behalf

Goods or services which you buy on behalf of the client, but which could also be purchased directly without your involvement (with the requisite knowledge and expertise, of course) can be excluded from VAT on your invoice. These are called disbursements.

It is of benefit to your clients if they are not VAT-registered, but is only worthwhile for your business if you are also paying no VAT on the purchase. Otherwise, you will receive less from the client than the total you paid.


Disbursements can be charged VAT-free on your invoice, but services you are required for cannot – unless these costs were VAT-free originally and your business is non-VAT registered. Expenses such as accommodation and travel are not classed as disbursements. Finally, be careful not to use your client’s internal claim form for expenses, as this could lead to a breach of IR35 regulations. For more information on how to charge expenses to a client, please call us on 02070996477 or email us at

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