Disbursements and GST

​​What is a disbursement?

A disbursement is when an agent makes a payment on behalf of a principal for goods or services received by the principal. 

In other words, the goods or services are not used by the agent, who merely makes the payment and passes the charge on to the principal.

This means that any GST charged on the supply of goods or services is recoverable as input tax only by the principal receiving the supply, and not by the agent. The agent is not required to account for output tax on the amount recharged to the principal.

How does it work?

A disbursement normally works like this:

• an agent is asked to procure services for their principal and has to pay for those services on the principal’s behalf
• the agent therefore issues an itemised invoice to the principal, treating the cost of the services as a disbursement
• the agent declares output tax only on the value of their own services, and not the services
• when paying the invoice, the principal refunds the agent the cost of the services

The eight conditions for a disbursement

All eight of the following conditions must have been met for a payment to be treated as a disbursement:

1. the person acted as an agent of their principal when they paid the third party
2. the principal, not the agent, used the goods and services supplied by the third party (this is usually the key condition)
3. the principal was responsible for paying the third party (if the debt was enforced in law, the principal would be sued)
4. the agent was authorised by the principal to pay the third party on the principal's behalf
5. the principal knew that the goods or services were to be provided to them by a third party
6. the agent’s service charges were separately itemised when they invoiced the principal
7. the amount recovered from the principal was exactly the same as the amount paid to the third party
8. the goods or services paid for by the agent were clearly additional to the agent’s own services

Examples

Togs Ltd wishes to sell clothing worth £20,000 to Modey Modes, a retail shop, but does not want Modey Modes to know that it is buying from Togs Ltd.

Togs appoints Jersey Supplies as its agent and issues it with a GST invoice for the clothing, showing £20,000 plus £1000 GST, dated 20 October 2021. Jersey Supplies treats this as a purchase and the GST is charged as input tax.

Jersey Supplies issues a GST invoice to Modey Modes for the clothing, showing £20,000 plus £1000 GST, also dated 20 October 2021.

​Jersey Supplies treats this as its own sale and the GST it pays as output tax.

Jersey Supplies can also invoice Togs Ltd for acting as its agent, and charge GST on it services. In this case the agency fee is £500 plus £25 GST.

Jersey Supplies' GST return for this period will therefore include the following values:

Box no.	Item	Amount
Box 1	Value of sales	£20,500
Box 2	Zero-rated sales	£0
Box 3	Standard rated sales	£20,500
Box 4	Purchases	£20,000
Box 5	Imports	£0
Box 6	Output tax	£1,025
Box 7	Input tax	£1,000
Box 8	Tax due to Treasury	£25

Download the document below to see examples of how GST works for different types of agents and disbursements, such as:

• estates agents
• postal charges
• advocates and solicitors
• collectors who act as agents / principals
• assigned debts

Examples of how GST works for agency and disbursements