Rechargeable travel expenses: billing Pakistan transport to clients

Rechargeable travel expenses are the costs your firm incurs to deliver work, such as a driver from Islamabad airport to a site meeting in Rawalpindi, that you then bill on to the client. For a UK VAT-registered business the default position is blunt: if the car was booked for your consultant, it is your cost, and passing it on makes it part of your own supply. HMRC’s rules mean you normally add VAT to that recharge at the rate of your main service, even if the Pakistani supplier charged no UK VAT at all. Genuine disbursements, which sit outside your VAT calculation, are the exception and have to pass a strict eight-point test. Most consultant transport in Pakistan fails it.

The real work is tagging every journey to the right client and project, getting paperwork that proves what happened without handing your client a price list, and keeping an audit trail you can defend six years later.

Decision summary: recharge or disbursement?

Start here if you only have two minutes. The table below is a working summary for UK firms sending staff to Pakistan; it is not tax advice, and your own accountant should sign off the treatment for your contracts.

Disbursement vs recharge: the UK accounting line

A partner who says “put the taxis through as disbursements” usually just means “show them as a separate line”. For VAT the terms have fixed meanings, and that gap is where invoices go wrong.

What a recharge is

A recharge is a cost you incurred in the course of making your own supply and then billed to the customer. HMRC’s guide VAT: costs or disbursements passed to customers treats these as part of what you sell. Its airline-ticket example maps directly onto ground transport: the trip was for you, so recharging it means charging VAT. It makes no difference that you billed at cost, or that the original supplier was outside the UK VAT system.

What a disbursement is

A disbursement is money you pay out as the client’s agent, for something the client itself receives, uses and was responsible for paying. Section 25 of HMRC VAT Notice 700 sets out the conditions, and every one has to be satisfied:

1. You acted as your client’s agent when you paid.
2. The client actually received and used the goods or services.
3. Paying the third party was the client’s responsibility, not yours.
4. The client authorised the payment.
5. The client knew a third party was providing the service.
6. The outlay is itemised separately on your invoice.
7. You recover only the exact amount paid.
8. The item is clearly additional to what you supply on your own account.

Condition two is the one that sinks most transport claims. Notice 700 says outright that it usually stops an agent’s own travel and subsistence being treated as a disbursement. Your consultant riding in the car is your business using the service, not the client.

Why the label matters commercially

Get it wrong in one direction and you under-declare output tax on the recharge, a shortfall that tends to surface at the worst moment, during an HMRC check. Get it wrong in the other and you may charge VAT on something that should have sat outside your supply. Notice 700 also points out a sting in the tail: if you treat a standard-rated purchase as a disbursement, you cannot reclaim its input tax, and your client may not be able to either. Pakistan journeys carry no UK input tax anyway, which is why firms reach for the disbursement label. It still has to be earned.

VAT on recharged Pakistan transport

There are two separate VAT questions here, and mixing them up causes most of the confusion.

Question one: did the Pakistani supplier charge UK VAT?

No, and it should not. HMRC’s Notice 744A on passenger transport fixes the place of supply of passenger transport by where the journey physically takes place: wholly outside the UK means outside the scope of UK VAT, and the supplier may have to account for whatever tax applies in the country where the driving happens. The same notice classes a vehicle supplied with a driver as passenger transport, while a car hired without a driver is a different supply, the hire of a means of transport. A chauffeured day in Lahore and a self-drive rental at Karachi airport are therefore not the same thing on paper, even if they end up on the same expense line.

So your purchase invoice from Pakistan will carry no UK VAT, and there is nothing to reclaim on it in your UK return. Whatever local tax appears is a matter for the supplier and Pakistani rules.

Question two: what VAT goes on your invoice to the client?

This is where the recharge rule bites. Because a recharge is part of your own service, it takes the VAT treatment of that service. If you are a UK consultancy billing a UK client for standard-rated advisory work, the transport line is standard-rated too, at the same rate as your fees. The zero-VAT purchase does not travel through to the sale.

If your client is outside the UK, your main service may itself fall outside UK VAT: HMRC’s Notice 741A on the place of supply of services sets the general business-to-business rule that a service is supplied where the customer belongs. The recharge follows it. That turns on your contract and client, not the car, so it belongs with your adviser, not your travel desk.

A worked example (hypothetical figures)

Example only: a UK engineering firm invoices a UK client £4,000 for a week of commissioning work near Islamabad. Its Pakistani transport supplier bills the equivalent of £300 for an airport pickup and five days of site runs, with no UK VAT. The firm’s invoice should look like this:

• Professional services: £4,000
• Recharged ground transport, Pakistan (project ref on file): £300
• Value for VAT: £4,300
• VAT at 20%: £860
• Total: £5,160

The client, if VAT-registered and entitled to recover, reclaims the £860 in the usual way.

Project cost allocation for travel: tag every journey

Recharging only works if each journey is attached to a client and project at the moment it is booked. Reconstructing that from a card statement three weeks later is how firms end up writing off transport they were entitled to bill. Treat the booking as the first entry in your project ledger.

The minimum fields per journey

• Client and project code, exactly as your practice-management or ERP system spells it.
• Cost centre, where your finance team splits by office or business unit as well as by project.
• Traveller name and, for a group, the headcount.
• Purpose in plain words: “supplier audit, Sundar Industrial Estate”, not “meeting”.
• Billable flag: rechargeable, non-rechargeable, or shared.
• Client PO number where the client’s accounts-payable team will reject invoices without one.

Write the codes into the booking reference or notes field when you place the journey, so they can carry through to the confirmation and the supplier invoice. If you manage bookings through an iDrive customer account, keep one naming convention for every booker, because a project code typed three different ways is three different projects to a spreadsheet.

Cost centre transport billing inside a large firm

Big practices often need two layers: the external recharge to the client, and an internal charge to the cost centre that owns the engagement. Keep them separate. The client sees journeys against their project; your management accounts see the same journeys against the office that ran the work. One booking, two tags, no double counting.

Recharging expenses to clients without exposing supplier rates

Here is the tension. Your client wants proof the transport happened. You may not want them holding your negotiated supplier rates, either because you recharge at a standard day rate that differs from cost, or because the supplier relationship is commercially sensitive. Both needs can be met if you pick the treatment first and design the paperwork around it.

If you are recharging

A recharge is your own sale. You can price it as your contract allows: at cost, at cost plus a handling percentage, or at a published per-day transport rate. Your client sees your invoice line, not the supplier’s. What you owe the client is whatever the engagement letter promises, typically evidence that journeys took place on the dates and for the purpose claimed.

That means you want two documents from the supplier, not one:

• A financial invoice addressed to your firm, showing amounts, for your accounts payable and your own VAT records.
• A journey log or trip statement with no prices: date, pickup and drop-off points, times, vehicle class, passenger names and your project code.

The log is what you attach to the client invoice or upload to their portal. It proves the travel without disclosing what you paid. Ask for this format before the trip, not after; some suppliers can produce it only from data captured at booking.

If you are treating something as a disbursement

Then privacy of the supplier price is off the table. HMRC’s conditions require you to recover the exact amount paid, itemised, with the client aware that a third party supplied the service. The client is entitled to see the figure because it is, in substance, their cost. Firms that want to keep rates confidential should not be calling transport a disbursement in the first place.

What a rate-free journey log should show

Mixed trips serving two clients

Pakistan itineraries are rarely tidy. A consultant lands at Islamabad, spends the morning with Client A in the Blue Area, drives down the M-2 to see Client B in Lahore, and flies home from Allama Iqbal International two days later. One driver, one vehicle, two clients, some personal time in between. Nobody wants to argue about who pays for the motorway.

Pick an apportionment method before you travel

• By journey leg. Each leg belongs to whoever the traveller was going to see. The Islamabad-to-Lahore transfer goes to Client B if its purpose was the Lahore meeting. Clean, but disputes arise over the connecting legs.
• By time. Split the driver day by hours spent on each client’s business. Works well for a full-day hire with a driver on standby.
• By agreed share. A fixed split, say 50/50, written into both engagement letters. Least precise, easiest to audit, and nobody can claim surprise.

Whatever you choose, apply it consistently for the whole trip and note the method on the internal record. A client who queries a £90 line is usually satisfied by a clear rule; what irritates them is a split that looks invented after the fact.

Strip out personal and non-billable time

A family visit to Gujranwala on the Saturday, or an evening run to a restaurant, is not billable to anyone. Flag it at booking as non-rechargeable. Separately, your payroll team should check whether any private element of employer-paid travel creates a benefit-in-kind question under HMRC’s employee expenses rules; that is a UK employment tax issue quite apart from the VAT position.

Building an audit trail that survives a client challenge

Client challenges to travel lines arrive late, often at year-end reconciliation or during a procurement review of the whole engagement. HMRC can also ask, and its record-keeping guidance, VAT Notice 700/21, says business records for VAT should generally be kept for at least six years.

What the file for each trip should hold

1. The authority to travel: the client email or engagement clause that allows transport to be recharged, and any cap or car-grade rule.
2. The booking record: confirmation with date, route, vehicle class and project code as entered at the time.
3. The supplier invoice: addressed to your firm, matched to your purchase ledger.
4. The journey log: the rate-free version sent to the client.
5. Proof of the work: timesheet entries, meeting invites or a site sign-in that match the dates.
6. The apportionment note for any shared day, with the method used.
7. For disbursements only: evidence that the client authorised the payment and that you did not reclaim input tax on it, which Notice 700 specifically asks you to be able to show.

Before the trip: a five-step setup for finance and the travel booker

1. Read the engagement letter. Confirm transport is rechargeable, at what basis (cost, cost plus, or fixed rate) and whether the client wants receipts or only a log.
2. Agree the VAT treatment with your adviser. For most consultant travel that means recharge with VAT following your main supply. Record the decision so the billing team does not re-litigate it on every invoice.
3. Set the codes. Issue the booker a list of project codes, cost centres and PO numbers for the trip, spelled exactly as finance will search for them.
4. Request the document pack in advance. Ask the transport supplier for a financial invoice and a separate priceless journey statement, and check what information they need at booking to produce both. Read our terms of hire before booking so your internal policy and the supplier’s conditions line up.
5. Book with the purpose written in. Put the meeting, site or flight number against each leg. It costs ten seconds and saves an argument later.

For itineraries that pack several meetings into one city day, our sister service Pakistan Taxi, also run by iDrive, has a practical walkthrough on planning transport for several business meetings in one day that is useful for deciding between point-to-point runs and a driver on standby.

Constraints finance teams tend to miss

Travel advice affects what you can bill, and whether you should travel

The UK FCDO travel advice for Pakistan advises against all travel to Balochistan, a long list of districts in Khyber Pakhtunkhwa (Peshawar among them) and the zone near the Afghan border, and against all but essential travel to further areas, including Sindh north of and including Nawabshah, Dera Ghazi Khan in Punjab and most of Azad Jammu and Kashmir. Check the current map before approving any site visit outside the main cities. The FCDO warns that travelling against its advice could invalidate your travel insurance; it also bears on your duty of care, and a client may reasonably refuse to pay transport for a journey its own policy prohibits. The advice also warns of protests in Islamabad, Rawalpindi, Peshawar and other cities, with road closures and transport disruption, so waiting time and rerouted journeys belong in your recharge terms too.

Self-drive versus car with driver

Notice 744A treats a car supplied with a driver as passenger transport and a self-drive hire as a different kind of supply. For your recharge the VAT outcome usually still follows your main service, but your expense categories, insurance position and client travel policy may distinguish between the two. A car with a driver also tends to produce the cleaner record, because the supplier, not your jet-lagged consultant, logs each trip.

Where iDrive fits

If you are organising consultant or executive travel in Pakistan and want the journey data captured properly from the start, look at our business travel car service in Pakistan. When you send a request through the iDrive booking page, add the client, project code and PO in the notes, and tell us if you need a separate journey statement without prices. We will confirm what we can provide for your itinerary; availability and final charges depend on the route, timing and vehicle, and are confirmed per booking rather than promised in advance.

Questions people ask

Can I recharge Pakistan transport to a UK client without adding VAT because the supplier charged none?

Usually not. A recharge is part of your own supply, so it takes your main service’s VAT treatment. The absence of UK VAT on the Pakistani purchase does not carry through to your sale.

Is a taxi for my own staff ever a disbursement?

Rarely. HMRC’s conditions require the client to have received and used the service, which normally rules out your own employees’ travel.

Can I mark up rechargeable travel expenses?

If your contract allows it, yes, as a recharge. A marked-up amount can never be a disbursement, because disbursements must be the exact sum paid.

How do I prove journeys to a client without showing what I paid?

Send a journey log with dates, routes, passengers and project codes but no prices, and keep the priced supplier invoice in your own records.

How long should I keep the paperwork?

HMRC says VAT records should generally be kept for at least six years. Keep the booking, supplier invoice, journey log and apportionment note together.