In these situations, the main consideration is  which party has the use of/the benefit of the additional service?

When we are considering building insurance, the policy will have most likely been taken out in the landlord’s name. If a claim was to be made against the insurance, the landlord would be the one to do this and would receive any due compensation. Therefore, the party that has the benefit of the insurance, would be the landlord. As a result, the cost of the insurance being passed onto the tenant would be an extension of the supply that the landlord is making.

A misconception is that, because insurance is an exempt supply, you wouldn’t add VAT to this added cost to the tenant. Because the landlord is not providing an insurance service to the customer, the added cost simply becomes part of the original supply made by the landlord. In the same way that any business owner would increase their prices to cover extra costs incurred. As a result, VAT should be added to the entire supply (providing the supply was taxable in the first place).

Disbursements are different in the sense that it is not the customer that had the use or enjoyment of the additional service (common examples being mileage, travel and subsistence costs).

If you have any questions about the above or would like more information specific to your circumstances, please get in touch .