How to charge clients for expenses: recharges, disbursements and sales tax (US, UK, Canada)

You bought a train ticket, a stock photo or a domain for a client project, and the client has agreed to pay it back. How do you put it on the invoice? Do you add VAT or GST/HST to it? Can you add a markup? Here's a plain answer, with what HMRC, the CRA and the IRS actually say.

General information, not tax or legal advice. Not written or reviewed by an accountant or a lawyer. The step-by-step table, the invoice layout and all the wording to copy are ours; the official items come from the UK, Canadian and US government pages linked below. They are general rules for any business that passes costs on, and none of them is a freelance law. US state and local sales tax rules, Canadian provincial sales taxes and other countries were not checked. Official pages were read on 2026-10-16.

The short answer

1. Agree in writing which costs the client pays back, and how, before you spend. The CRA says this is up to you and the client.
2. Most costs you pay to do the work (travel, postage, your own tools) are part of your service. If you're registered for VAT or GST/HST, you usually charge tax on them like on your fee, even when the supplier charged you none.
3. A cost you pay only as the client's agent, for something the client receives and uses, can be passed on without your VAT or GST/HST. In the UK this is a "disbursement", and it has to meet every one of HMRC's conditions.
4. Show each passed-on cost on its own invoice line, and keep the receipt.
5. If you claim back the tax you paid on a cost, bill the cost without that tax (the CRA says so for GST/HST).
6. In the US, sales tax isn't covered here (we didn't check any state's rules). For federal income tax, the IRS says to account to your client for travel and gift costs it reimburses, or count the reimbursement as income.

On this page

• 1. Recharge, reimbursement or disbursement?
• 2. Agree it before you spend
• 3. UK: VAT on recharges and disbursements
• 4. Canada: GST/HST on out-of-pocket expenses
• 5. US: reimbursed expenses and income tax
• 6. Side by side
• 7. How to show expenses on the invoice
• 8. At cost or with a markup?
• 9. Step by step
• 10. Wording to copy
• 11. Checklist
• Free tools and kits
• Where the sources differ
• When to get advice
• Related
• Sources

1. Recharge, reimbursement or disbursement?

People use these words loosely. The tax pages use them more carefully:

• Recharge (UK): a cost you used in your own work, shown separately on the invoice. "If you do show them separately when you invoice your customers they’re known as ‘recharges’, and not disbursements. You’ll have to charge VAT on them whether you paid any VAT or not." (GOV.UK: VAT, costs or disbursements passed to customers, page date 2014-07-01).
• Disbursement (UK): "When you make payments on behalf of your customers, for goods or services received and used by them, you might be able to treat these payments as ‘disbursements’ for VAT purposes." "This means that you:"
  • don’t charge VAT on them when you invoice your customer
  • can’t claim back any VAT on them
  (GOV.UK).
• Out-of-pocket expense (Canada): the CRA's GST/HST Info Sheet GI-197 "This info sheet explains how the GST/HST applies when out-of-pocket expenses are incurred by a supplier, such as a consultant, and subsequently charged to a client." It splits them into expenses "not incurred as agent" and "incurred as agent" (CRA: GST/HST Info Sheet GI-197, Out-of-Pocket Expenses, page date 2021-12-17).
• Reimbursement (US): the IRS's Publication 463 has a section on "Rules for Independent Contractors and Clients": "This section provides rules for independent contractors who incur expenses on behalf of a client or customer." "You are considered an independent contractor if you are self-employed and you perform services for a customer or client." (IRS: Publication 463, page date 30-Apr-2026).

Our reading of all four: what matters is who the cost was really for. If you bought it to do your job, it's part of your service. If you bought it for the client, in the client's name, as their agent, it may sit outside your service.

2. Agree it before you spend

The CRA: "Any reimbursement is an issue to be determined by the parties; in other words, the client and the supplier are responsible for agreeing which of the supplier’s expenses will be reimbursed by the client, and to what extent." (CRA: GST/HST Info Sheet GI-197). The other pages we read don't say otherwise. In practice, put it in your quote, proposal or contract: which costs, at cost or with a markup, any cap, and when you'll ask first. Add it next to the payment terms from our contract clause checklist; section ten has an expenses clause to copy.

Agreeing it in writing also helps with tax. In the UK, the client's permission is one of the conditions for a disbursement; in Canada, the CRA's GST/HST Info Sheet GI-012 looks for the client's consent and authority when it decides whether you acted as their agent (section four).

3. UK: VAT on recharges and disbursements

This only matters if you're VAT registered. If you're not, you don't charge VAT on anything (see before you're VAT-registered).

• The default: "The consideration for a supply includes any payment that you are given to cover your costs in making the supply, unless you incur the costs as an agent" (HMRC: VAT Notice 700, page date 2026-06-25). "If these costs have been incurred by suppliers in the course of making their own supply to their clients, then they must be included in the value of those supplies when VAT is calculated." (VAT Notice 700, section 25.1).
• Costs of your own work are not disbursements: "There are many incidental costs your business might incur that must be included in VAT calculations when you invoice customers. These include items like travelling expenses and your own postage and delivery costs." "Costs that your business incurs itself when supplying goods or services to customers are not disbursements for VAT. It’s you who buys the goods or services for use in your own business." "Some examples of costs that could be recharges but are not disbursements include:"
  • an airline ticket that you buy to visit a client or to travel to a job, if you recharge the cost to your client you must charge VAT because the flight was for you, not for the client
  • postage costs you incur when you send letters to your customers, these are normal business costs and you must add VAT if you recharge them
  • a bank transfer fee paid when transferring money from your business account to a client’s account - even though the bank’s fee is exempt from VAT, if you recharge the fee you must charge VAT, because it was for a service provided to your business and not to your customer
  (GOV.UK). VAT Notice 700 gives a consultant's air fare as an example: "The consultant cannot treat the air fare as a disbursement for VAT purposes. The supply by the airline is a supply to the consultant, not to the client." (VAT Notice 700, section 25.1).
• When it can be a disbursement: "You might be able to leave out these payments from your VAT calculations because it’s the customer, not you, who buys and receives the goods or services; you’re just acting as their agent." "To treat a payment as a disbursement all of the following must apply:"
  • you paid the supplier on your customer’s behalf and acted as the agent of your customer
  • your customer received, used or had the benefit of the goods or services you paid for on their behalf
  • it was your customer’s responsibility to pay for the goods or services, not yours
  • you had permission from your customer to make the payment
  • your customer knew that the goods or services were from another supplier, not from you
  • you show the costs separately on your invoice
  • you pass on the exact amount of each cost to your customer when you invoice them
  • the goods and services you paid for are in addition to the cost of your own services
  (GOV.UK). VAT Notice 700 words the client condition as "your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, phone bills, postage, and other costs being treated as disbursements for VAT purposes)" and adds: "All these conditions must be satisfied before you can treat a payment as a disbursement for VAT purposes." HMRC's own staff manual says the client-used condition is "the client and not the agent used the goods and services supplied by the third party (in practice, this is usually the key condition)", and: "A trader must prove that he has met all the above conditions if he is to be entitled to exclude the payment from the value of his own supply." "This will involve keeping separate records for disbursements." (HMRC internal manual VTAXPER39000, page date 2016-02-23).
• GOV.UK's worked example: "A website design consultant based in London does a week’s work for a client in Edinburgh." "The consultant also agrees to purchase a website hosting package from an Internet service provider on behalf of the client." In that example the consultant's travel, recharged to the client, carries VAT; the hosting package, passed on at exactly what it cost, is a disbursement (GOV.UK).
• Is it worth it? "It’s usually only an advantage to treat a payment as a disbursement if the supplier didn’t charge VAT on it, or if your customer can’t reclaim the VAT." (GOV.UK).
• Reclaiming the VAT you paid: "If you had to charge VAT on items you paid for because they were supplied to you and not to your client, you can claim back any VAT you paid on them. It makes no difference whether or not you passed these costs on to your customers as recharges." On a disbursement: "You can’t claim this VAT back if the goods or services were supplied to your customer and not to your business, and you treated this as a disbursement for VAT purposes when you invoiced your customer and did not charge VAT." VAT Notice 700 adds about the client: "Your client may also be prevented from doing so because the client does not hold a valid VAT invoice." (GOV.UK; VAT Notice 700).
• Invoice and records: "If you exclude disbursements from the VAT calculations you must itemise them separately on your VAT invoices." "If you pass on any disbursements to your customers and don’t charge VAT on them, you must keep evidence, such as order forms and invoices, to show that you were entitled to leave the items out of the VAT calculation when you invoiced your customers." "You must also be able to show that you haven’t claimed back the VAT on items you paid for on your customers’ behalf." (GOV.UK). For everything else a VAT invoice must show, see HMRC's list.

4. Canada: GST/HST on out-of-pocket expenses

This matters if you're a GST/HST registrant. If you're not registered, you don't charge GST/HST (see if you're not registered).

• Expenses not incurred as agent (the usual case): "When a supplier, in the course of supplying a service to a client, pays an out-of-pocket expense that is not incurred as agent and the client has agreed to reimburse either all or a portion of the expense, the amount invoiced to the client is treated as additional consideration payable for the supplier’s supply of the service. The GST/HST therefore applies to the additional invoiced amount in the same manner and rate as it applies to the supply of the service." (CRA: GST/HST Info Sheet GI-197).
• Don't bill the GST/HST you claim back: if you can claim an input tax credit for the GST/HST you paid on the cost, "As a result, the supplier should not include the amount of the GST/HST that was paid or payable by the supplier in respect of the out-of-pocket expense on the invoice to the client." (CRA). The CRA's worked examples bill the cost before tax, then charge GST/HST on the fee plus the cost.
• Typical examples: "Typical out-of-pocket expenses not generally incurred as agent that a registered supplier may charge a client include any of the following:"
  • office supplies, if they are associated with the service being performed by the supplier for the client
  • air travel
  • local transportation, such as a taxi
  • parking
  • hotel or other accommodation
  • per diem amounts, such as meals
  • car rentals and gasoline
  • an automobile allowance, where the supplier’s personal vehicle is used in the performance of the service
  (CRA). The info sheet adds that some of these, such as meals, have their own limits on input tax credits.
• Expenses incurred as agent: "When a supplier incurs an out-of-pocket expense as a client’s agent (that is, the expense is incurred as agent), the client is considered to be the recipient of the supply. The reimbursement of the supplier’s out-of-pocket expenses by the client is not treated as additional consideration for the supplier’s services. As a result, the expense identified in the supplier’s invoice to the client would not be subject to the GST/HST." "It is important to note that when a supplier is an agent of the client, the supplier does not necessarily incur all out-of-pocket expenses as agent." "Where the GST/HST is payable on an expense incurred as agent, the supplier is not eligible to claim an ITC in respect of the GST/HST that was paid or payable on the supply. Instead, the supplier should be reimbursed by the client for the expense, along with the GST/HST and any other taxes and levies paid by the supplier." (CRA).
• Are you the client's agent? "Whether a supplier is acting as the agent of its client in a particular transaction is a question of fact and law." (CRA). The CRA's GST/HST Info Sheet GI-012: "The three essential qualities are:"
  • consent of both the principal and the agent;
  • authority of the agent to affect the principal's legal position; and
  • the principal's control of the agent's actions.
  "It is also important to note that an oral or written agreement might say that one person is not an agent, but a court may decide that the person is an agent." (CRA: GST/HST Info Sheet GI-012, Agents, page date 2005-11-21). That sheet is old and says so: "Although correct at the time of issue, this publication may not have been updated to reflect subsequent legislative changes."

For the rest of what a GST/HST invoice must show, see the CRA's checklist. Provincial sales taxes (and Quebec's QST) on passed-on costs: not checked.

5. US: reimbursed expenses and income tax

• Account to your client: "If you received a reimbursement or an allowance for travel, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. If you don’t account to your client for these expenses, you must include any reimbursements or allowances in income. You must keep adequate records of these expenses whether or not you account to your client for these expenses." "As a self-employed person, you adequately account by reporting your actual expenses." (IRS: Publication 463, Rules for Independent Contractors and Clients).
• On the client's side: "If the contractor adequately accounts to you for reimbursed amounts, you don’t have to report the amounts on an information return." (IRS). The same section has extra rules for meal and entertainment costs, for both you and the client; read it if you pass those on.
• Where it goes on your return: your income and expenses go on Schedule C (see our Schedule C guide). Car costs: see our mileage log.
• Sales tax: we did not check any state's or city's rules on taxing services or reimbursed costs.

Our reading: the IRS section is written about travel, gift, meal and entertainment costs. It doesn't say how to treat other passed-on costs, such as software or materials; we didn't find an IRS page that does, so we haven't covered them.

6. Side by side

Our summary of sections three to five, not official wording.

7. How to show expenses on the invoice

Our suggested layout, following the order in the HMRC and CRA examples (fee and recharged costs, then tax, then any disbursements). Replace everything in [brackets]:

Not registered for VAT or GST/HST? Leave out the tax line; the expense and disbursement lines still help the client check what they're paying. The rest of the invoice: line items, tax and the total. Billing in another currency: invoicing international clients.

8. At cost or with a markup?

• A UK disbursement has to be passed on at exactly what you paid: "you recover only the exact amount which you paid to the third party" (VAT Notice 700, section 25.1). Add anything to it and it's not a disbursement.
• For costs that are part of your service, none of the pages we read sets a rule on markups. Whether you add one is a pricing choice between you and the client; agree it up front, as the CRA says.
• If you'd rather not track small costs at all, build them into your price instead (see fixed price vs hourly and showing the price on a quote).

9. Step by step

Our suggested order (general practice, not an official list):

10. Wording to copy

Replace everything in [brackets]. This is ours, not from any government page, and it's not legal or tax advice.

An expenses clause for a quote, proposal or contract

Expenses. The Client will pay back the following costs I pay to do this work: [travel / materials / software or services bought for the project]. I'll charge them [at cost / at cost plus an agreed handling fee of [amount]] and show each one on its own invoice line, with receipts available on request. I'll ask the Client in writing before any single cost over [amount] or any cost not listed here. Costs I pay in the Client's name, for things the Client will own or use, are paid on the Client's behalf and shown separately.

Email asking the client to approve a cost

Subject: OK to buy [item] for [project]?

Hi [name],

To [what it's for], I need [item] from [supplier]. It costs [amount] [plus tax, if any].

[Option A: I'll buy it for my own use on the project and add it to my next invoice as an expense, at cost.]
[Option B: it would be bought in your name, for you to own and use. I can pay it on your behalf and pass on the exact amount, or you can pay the supplier directly.]

Can you reply to confirm before [date]? I'll keep the receipt and attach a copy to the invoice.

Thanks,
[Your name]

11. Checklist

• The quote or contract says which costs the client pays back, at cost or with a markup, and when you'll ask first.
• Approval saved for any big or unusual cost.
• Each receipt kept, with the client and project noted on it (see how long to keep records).
• Each cost sorted: used to do your work, or paid for the client as their agent.
• Recharged costs billed without any tax you claim back, and taxed like your fee if you're registered.
• Any disbursement meets every condition, is shown separately, at the exact amount, with no tax of your own and no tax reclaimed by you.
• US: travel and gift costs accounted for to the client, with your records kept.

Free tools and kits

• Our free invoice generator runs in your browser; nothing you type is sent or saved.
• Our paid Freelance Billing Kit by Small Rows (US$12, one-time) has two "Other charges" lines on its Invoice tab for costs you pass on. The client's tax rate applies to the whole subtotal, other charges included, which fits a recharge that is taxed like your fee. It can't leave a disbursement out of the tax on the same invoice (bill that on its own invoice, under a client row with no tax rate), and its Expenses tab doesn't mark which costs you've billed to a client. It doesn't decide which treatment applies.
• Our paid Quote & Proposal Kit by Small Rows (US$12, one-time) has a "Taxable?" column on each quote line, so an expected cost can be quoted as taxed or not taxed, and the quote shows the two parts separately. Which one is right is still your call.
• All three kits together: the All-Kits Bundle by Small Rows (US$24, one-time).

Where the sources differ

• Words: HMRC separates "recharges" from "disbursements"; the CRA talks about out-of-pocket expenses "not incurred as agent" and "incurred as agent"; the IRS section talks about reimbursements and allowances. The ideas line up, but check the word your tax office uses.
• The tax you paid: the CRA says to leave the GST/HST you claim back out of the cost you bill; the GOV.UK page says you can reclaim VAT on items supplied to you whether or not you recharge them, and doesn't say in the same words to bill the cost without it.
• Page dates: the GOV.UK page and the CRA's GST/HST Info Sheet GI-012 show old page dates; that may only mean the text hasn't changed. Check the live page before relying on it.
• What we did not check: US state and local sales tax on services and reimbursed costs; IRS rules for passed-on costs other than travel, gift, meal and entertainment costs; Canadian provincial sales taxes, Quebec's QST and the place-of-supply rules; UK income tax treatment of recharged costs; client information returns (such as the forms a US client files for payments to you) beyond the one line quoted; reverse charge and cross-border rules; the EU and other countries.

When to get advice

• you want to treat a cost as a disbursement and aren't sure every condition is met;
• you buy large items, software licences or services in the client's name;
• the client is in another country, or you're unsure which sales tax applies;
• you pass on meals, entertainment or gifts;
• you want to add a markup or a handling fee and aren't sure how to tax it;
• a client or tax office questions how you've billed an expense.

Talk to an accountant or tax adviser where you work, or contact HMRC, the CRA or the IRS. This page is general information only.

Related

• How to write a freelance invoice
• How to track freelance expenses
• What a UK VAT invoice must show
• What a GST/HST invoice must show (Canada)
• Freelance contract checklist
• Fixed price vs hourly
• US Schedule C for freelancers

Sources

• United Kingdom: GOV.UK: VAT, costs or disbursements passed to customers (page date 2014-07-01) · HMRC: VAT guide (VAT Notice 700), section 25.1 (page date 2026-06-25) · HMRC internal manual VTAXPER39000 (page date 2016-02-23)
• Canada: CRA: GST/HST Info Sheet GI-197, Out-of-Pocket Expenses (page date 2021-12-17) · CRA: GST/HST Info Sheet GI-012, Agents (page date 2005-11-21)
• United States: IRS: Publication 463, Travel, Gift, and Car Expenses (page date 30-Apr-2026)

Checked 2026-10-16. Found a mistake? Tell us via Support.