Readers’ forum: VAT problem created by disbursement mark-up?

One of my clients trades as a solicitor and it is quite common for her to pay court fees of say £250 on behalf of her clients passing this charge onto the client as a disbursement. She shows all disbursements as separate lines on her sales invoices ie separate to fees for her time. She does not charge VAT on any disbursements.

However in this example she does not charge the fee at cost but adds on a 10% mark-up to all charges ie £275 in this case. The entry is noted on the invoice line as ‘court fee including 10% administration charge.’

As I understand it she has breached one of the conditions of a disbursement per HMRC Notice 700 section 25 ie the payment made to the third party – the court in this example – must...