A: As the consultant has incurred these costs in the course of making their own supply to the customer any “recharges” of these amounts are simply a cost component of the client’s supply since our client is the one to actually use those costs. As a result the value of any “recharges” must be included in the total value of the consultancy supply to the customer before calculating VAT. It is common for businesses to try and claim that these are outside-the-scope disbursements however as explained in paragraph 25.1 of VAT Notice 700 this treatment is not correct and this stance on disbursements was recently confirmed in the Brabners case where HMRC emphasise the importance of who is using the costs to make their supplies. In this case, since the client is supplying consulting services to a UK business customer, standard-rated VAT will be due on both the “fee” element and the “recharged expenses” element. The fact that some of the costs incurred by the consultant might have no VAT on them does not impact this. The client is the one who received and used the zero rated passenger transport, the client is not charging the end customer for passenger transport they are merely saying their fee to provide their consultancy services is increased to take into consideration the expenses incurred to complete it. The value of the “recharge” is a commercial matter between the parties (unless the parties are connected and the customer is unable to recover all of its VAT, in which case HMRC could force a market value). While this will often be on a no mark-up basis with the customer wanting to see documentary evidence of the spend, it doesn‘t have to be.