Disbursements and expense reimbursements are important concepts for businesses. Disbursements refer to the sums of money paid by a service provider on behalf of the company. On the other hand, expense reimbursements are the amounts that the company pays to compensate for expenses made by its employees or service providers.
From a tax point of view, it is essential to clearly distinguish disbursements from other types of expenses to ensure accurate accounting and avoid errors when filing tax returns. Rigorous management of these costs not only allows us to maintain financial transparency but also to comply with current legal and tax obligations.
Within a company, it is important to master the following three points:
- Understand the difference between the two concepts;
- Know how to correctly record them in accounting;
- Know the tax consequences of these accounting operations.
Let’s look at these three points below!
I – Understand the difference between the two concepts
1 – Disbursements are defined in four essential points
Article 267, II-2° of the general tax code gives the following definition of disbursements:
“- they correspond to expenses which were incurred in the name and on behalf of their principals;
– they gave rise to precise reporting;
– they are justified in their nature or their exact amount to the tax administration;
– they are recorded in transit accounts in the intermediaries’ accounts.”
Consequently, for an amount received from a client to reimburse expenses incurred on his behalf to be considered as disbursements, the four criteria above must necessarily be respected by formalizing them as follows:
- Establish an explicit prior mandate between the two parties. This may be tacit, without however being doubtful;
- Provide the customer with explicit accounting of the amount of disbursements. This statement of account, if it appears on the invoice, must be distinguished from the amount of fees;
- Keep supporting documents to provide proof to the tax administration, if applicable;
- Record disbursements in third party accounts and never in expenditure accounts.
2 – Chargebacks
This notion concerns all the costs that a service provider bears for the execution of the service it provides and for which it requests reimbursement from its clients, in addition to its fees or remuneration. This is the case, for example, for travel costs (rental of a vehicle, hotel or restaurant costs, etc.) that a person incurs during the mission or work he is responsible for carrying out.
This further concerns:
- insurance costs;
- certain interests;
- billing costs, etc.
The company can re-invoice by applying a profit margin when possible.
II – The accounting and tax aspect
1 – The rigor of accounting for disbursements
As we saw above, the General Tax Code requires a single method of accounting for disbursements so that the tax regime is applicable to them.
The accounting method is as follows:
- Once the purchase is made, the transaction must be recorded in account no. 467 opened in the name of the client This account is used to record various transactions different from usual accounts.
- In return, the disbursement must appear at the accounting level to the credit of the cash account which was used for the payment (account 512 for example).
- Account 467 is credited upon reimbursement of the disbursement by the customer. At the end of these operations, account 467 is closed.
Disbursements are not subject to VAT, nor to income tax or corporate tax, provided however that they respect the definition given by article 267, II-2° of the CGI which we have observed higher. Thus, the invoicing of disbursements is not considered as turnover, but as the reimbursement of costs incurred in place of the customer and on his behalf.
2 – Expense reimbursements – transactions carried out by the company in its personal name
In this case, the accounting method is summarized as follows:
- When the company advances the costs, it records the purchase invoice as follows:
- Debit from account 60 “Purchases” for the amount excluding taxes,
- Debit account 44566 “VAT on other goods and services” for the amount of VAT,
- Credit of account 401 “Suppliers” for the amount including tax.
- Then we record the payment of these costs:
- Debit from account 401 “Suppliers” for the amount including tax,
- Credit of account 512 “Bank” for the same amount.
- When invoicing the services to the client:
- Debit from account 411 “Customers” for the total amount including tax of the invoice,
- Credit of account 706 “Services” for the amount excluding tax of the service or fees,
- Credit of account 708 “Proceeds from additional activities” for the amount excluding tax of the reimbursement of expenses claimed,
- Credit of account 44571 “VAT collected” for the amount of VAT applicable on the services (or fees) and the reimbursement of expenses.
We therefore see that the re-invoicing of costs to a customer constitutes a product subject to VAT as well as income tax or corporate tax. The fact that it is carried out with or without a profit margin makes no difference. This is a turnover item.
Note: Article 206, IV, 2.5° of the CGI stipulates that VAT is not recoverable on “passenger transport services and services incidental to this transport, excluding those carried out either on behalf of a public passenger transport company, or under a permanent transport contract concluded by the companies to bring their staff to the workplace”.
Consequently, when a company re-invoices travel costs, VAT cannot be recovered on them. When these costs are passed on to the customer in addition to the main price of a service, the latter can, on the other hand, deduct VAT on the price of the entire service including these reimbursements of costs.
Our advice: If in doubt, and moreover if your client is a company subject to VAT, it is better to re-invoice the costs incurred according to the rules applicable to reimbursements of costs and submit them to VAT.
All the team of French Business Advice remains at your disposal, so do not hesitate to contact us!
