Recharging expenses


When you are a UK contractor, it could be the case that you need to be aware of the process of recharging expenses. Moreover, this may arise during the course of your work, if you begin to incur expenses on behalf of the client. On the other hand, you may need to recharge expenses from the outset when you start your new business.

As part of your contract work, you may incur costs for expenses while working for your client. In many cases, these costs will be incurred directly on behalf of your client. For instance, such costs could include:

  • Your expenses incurred while carrying out your work, such as travelling expenses.
  • The cost of any goods -you may acquire some goods on behalf of your client, such as equipment.

When it comes to recharging expenses, this will depend on who your client is and which industry you are in. In today’s world, many contractors will incur travelling type costs, whilst travelling to their work locations. However, other contractors or consultants may also incur costs for goods, directly on behalf of their client. In both instances, it could be your responsibility to pay for the goods or services, on your customer’s behalf.

If it is the case that you are incurring the cost of expenses or goods as part of your work, it follows that you should then be allowed to recharge the cost to your client. Therefore, when this is so and you can recharge your expenses, there is a certain process for you to follow.

Initial thoughts

How do you recharge the cost of your expenses correctly, when you invoice your client? This is a common misunderstanding, amongst many contractors and small business owners.

It is not necessarily easy to discover or find out how to recharge expenses correctly. In most cases, many clients will also not make it clear how you should do this. Moreover, they will expect that you know how to do this yourself. As a result, you can research this on the internet yourself through HM Revenue & Customs’ (HMRC) and other websites. However, most contractors or small business owners will find that the process explaining how to do this is not very easy to locate.

Any goods or services that you pay for, which are a cost to your customer, will need showing on your invoice to your client. As part of this, you will need to show these costs separately. To clarify, you will need to make it clear on your invoice which elements are for:

  • Your main consultancy fees / hours worked.
  • An expense recharged.

As a side note, when you create your invoices to send to your client, you could do this in your home office. In addition, when you create your invoices to your clients, you could use an online accounting platform to do this. Notably, many of these online systems will now help you to create invoices.

Do you charge VAT when you are recharging expenses? 

VAT legislation

Under VAT legislation, when you recharge expenses, you will need to show these separately on your invoice. When you recharge your expenses, these will more than likely include travel expenses. In addition, your expenses may also include some incidental costs too. As a result, when recharging your expenses, you will need to follow the correct process.

Recharging expenses -expenses that include and do not include VAT

 Key to note, for an expense to include VAT, the following must apply:

  • First, the expense will be of a VAT inclusive nature. Notably, most costs include VAT, but some do not. Please note, this includes rail fares, tube fares, flights, and some others.
  • Next, the supplier will be VAT registered. Importantly, if the supplier is VAT registered, there will be a VAT number on their invoice or receipt. For example, large hotels will be VAT registered, but many small B&Bs will not be.

VAT inclusive costs

The current rate of VAT in the UK is 20%. Therefore, if you incur a hotel bill for £100.00 + VAT, the total expense cost would be £120.00. Consequently, the amount that you would list on your expenses would be £100.00.

On the other hand, if you had a rail fare for £50.00, the amount that you would list on your expenses would be £50.00. This is because there is no VAT on rail fares, therefore there is no VAT to take out of this.

Formula to use

When you work out the VAT to recharge and the total to bill your client, you can use this formula:

  • First of all, in the VAT calculations, please reduce any VAT-inclusive expenses to the pre-VAT element. Please note, for an expense to include VAT, it has to be of a VAT inclusive nature. What’s more, VAT inclusive expenses will include a travel cost such as a hotel bill, parking fee or meal out etc. However, certain expenses like flights and rail fares do not include VAT. Key to note, when a business is VAT registered, the expense should contain a VAT number on the invoice / receipt.
  • Second, please add up all of your expenses. Once you have done this, you will arrive at a sub-total of expenses.
  • Next, add the expenses sub-total to the consultancy fees. As a result, you will arrive at a second sub-total.
  • The next step is to add VAT at 20% on to the second sub-total. Please note, this is the actual VAT on the recharged expenses.
  • Finally, you will arrive at the grand total. This is the amount that is billable to the customer.

VAT guide

Please note, we have a separate VAT guide. As part of this, it covers how VAT works for UK contractors. The guide itself contains all the main aspects surrounding VAT and it is therefore a handy guide for most small business owners too. What’s more, this covers many tips and advice around VAT, when you run your own business.

An example of recharged expenses

When you create your invoice, this will include your supply of goods or services. Therefore, when you are ready to add your expenses, please note:

  • If your hotel bill came to £120 and this included standard rated VAT at 20%, you would need to net this down to 100/120ths. Therefore, you can multiply £120 x 100/120. Alternatively, you can use 5/6ths as a simplified formula, instead of 100/120ths. Please note, the result is £100 and this is the amount that you would charge to your client.
  • If your rail fare came to £50, you would charge £50. As mentioned earlier, rail fares do not include VAT.

Example of recharging expenses incurred

Expense cost VAT element Reduced expense
Hotel bill 120.00 20.00 100.00
Rail fare 50.00 50.00
Meal 20.00 3.33 16.67
The total expenses to recharge 166.67

Example of what your invoice could look like when you have recharged expenses

Consultancy fees 3,000.00
Gross VAT Charge
Hotel bill 120.00 20.00 100.00
Rail fare 50.00 50.00
Meal 20.00 3.33 16.67
Total expenses 166.67 166.67
Total fees & expenses 3,166.67
VAT at 20% 633.33
The total billable to the client 3,800.00

Further example of how recharged expenses may look

Please note, on your invoice or even on your client’s expenses form, the expenses recharge could be set out differently from the above. In this example, it shows the VAT element that is separately applicable to both your fees and expenses:

Charges VAT at 20% Total
Consultancy fees 3,000.00 600.00 3,600.00
Gross VAT Charge
Hotel bill 120.00 20.00 100.00
Rail fare 50.00 50.00
Meal 20.00 3.33 16.67
Total expenses 166.67 166.67 33.33 200.00
The total billable to the client 3,166.67 633.33 3,800.00


Most important, when you recharge expenses, you will need to do the `netting down; exercise that is shown above. However, if you do not follow this process, you will, in effect, charge the VAT element to your client twice. As a result, this will ultimately cost your client more. As a result, you would need to consider making contact with your customer/client to try and sort this out. Alternatively, you could decide to leave this as it is and:

  • First, be aware that you did not do this correctly in the first place. As an aside, you should make a note that HMRC could pick up on this at a later date.
  • Second, make sure you do this correctly going forward.

Final thoughts  

When you recharge your expenses, it is important to account for VAT correctly. Therefore, when you do the `netting down’ process, you are effectively charging VAT on any expenses that did not include VAT in the first place. As a result, you are also restoring any `netted down’ expenses to their original costs. Finally, the method that we describe here is the correct way to recharge expenses to your customer or client.

Link to Contractor Advice UK group on


Published On: March 7th, 2021 / Categories: First timer guide, Invoicing /

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