Disbursements on a fee note: VAT codes and recovery
How a law practice records disbursements paid for a client, puts each recovery on the fee note as its own line, and picks the VAT treatment per line.
By Achekam · · 4 min read · For Legal businesses in South Africa, Nigeria, Kenya
A litigation matter generates outlays long before it generates a judgment. The sheriff serves the summons and sends an account. The courier takes the bundle to court. An expert prepares a report. A deeds office search, a copy of a court record, a revenue stamp: each is paid by the practice and each, under the mandate, is recoverable from the client.
Fee notes that handle these badly cause two kinds of trouble. Clients query lines they cannot recognise, and VAT is charged, or not charged, on recoveries without anyone having thought about why. This article explains how a law practice in South Africa, Nigeria or Kenya can record disbursements in Achekam, bill them line by line, and choose each line's VAT treatment deliberately.
A recovery from the client, or the practice's own running cost?
Not everything the practice pays for on a matter is a disbursement. A useful test is whether the cost was incurred specifically for this client's matter and is recoverable under your mandate.
| Cost | Usually |
|---|---|
| Sheriff's fees for serving process | A disbursement recovered from the client |
| Expert's report commissioned for the matter | A disbursement recovered from the client |
| Court or registry fees for the matter | A disbursement recovered from the client |
| Photocopying and postage in the office generally | The practice's own running cost, covered by the fee |
| Practice's own courier account for general deliveries | A running cost, unless a specific delivery is billed |
Agree the line between the two in your fee policy and mandate, so fee earners do not decide it differently on every matter.
Recording the outlay first
Record each outlay as a supplier bill before it is recovered. A business records supplier bills line by line with VAT. A bill without a purchase order waits for approval before it posts, and it can be paid in full or in parts from a chosen bank account. Put the matter reference in the bill's description, so the bookkeeper can find it when the fee note is prepared.
South African practices set each bill line to 15% or 0% VAT, and bills post input VAT to the ledger. Nigerian and Kenyan practices should know a current limit: supplier bills do not yet use the country's own VAT rate, offering 15% or 0% and defaulting to 15%. Check the VAT on each bill line, and agree with your accountant how input VAT is recorded until bills follow your country's rate.
Supplier accounts that arrive by e-mail can be uploaded to Financial Intake, where they become suggested postings; AI can suggest, but only a person approves and posts. Paying counsel and correspondents without paying twice is covered in paying counsel and correspondent attorneys' accounts.
Putting each recovery on the fee note as its own line
Bill each disbursement as a separate line, described the way the client will recognise it: "Sheriff, service of summons on defendant", not "Disbursements". A business creates fee notes as drafts it can change or delete, and issuing one takes the next number and posts it as debtors, sales and output VAT.
One thing to know about the books: all invoice revenue currently posts to one account, Professional Services Revenue (4100), and a line cannot name another sales account. Your recoveries will therefore sit in the same revenue account as your fees, while the outlays sit in an expense account. If you want fee income and recoveries reported separately, agree a month-end reclassification journal with your accountant.
South Africa: 15% or 0% per line, and the exempt gap
A South African practice sets each fee note line's VAT to 15% or 0%. The invoice screen does not tell zero-rated and exempt apart: a line with no VAT shows as 0% whichever it is. When a line states no rate, VAT is taken at the rate in force on the fee note's date.
Whether a particular recovery carries VAT depends on how the practice incurred it, for example whether it acted as the client's agent in paying it, or bought a service it then supplies on. SARS's VAT 404 Guide for Vendors is the comprehensive guide to VAT at 15%, tax invoices, zero-rated and exempt supplies and records, and it is where your adviser will start. Because the screen shows exempt and zero-rated lines the same way, keep a note of which no-VAT lines are which, for your VAT return. How line-level VAT works in general is in VAT on invoice lines.
Nigeria and Kenya: a tax code per line
A Nigerian or Kenyan practice picks a tax code on each fee note line: standard, zero-rated, exempt, out of scope or reverse charge. Only standard lines carry VAT, at the approved rate for the country. This applies once the country pack is activated under Settings, Jurisdiction & regulators, so check it is switched on before the first fee note.
The codes let a practice say exactly what it means: a professional fee as standard, a true pass-through payment as out of scope if your adviser agrees, and so on. Use the same code for the same kind of recovery every time.
Questions to settle with a tax adviser before the first fee note
- Which recoveries does the practice make as the client's agent, and which as a supplier in its own right?
- What VAT treatment, or tax code, does each kind of recovery take?
- Should the outlay's input VAT be claimed, given how the recovery is treated?
- How will recoveries be shown separately from fees in the management accounts?
- What wording on the fee note makes each line clear to the client?
Write the answers into a one-page table for fee earners and the bookkeeper. Then prepare the next fee note from it, line by line, and have someone check the first few before they go. Deposits taken up front to cover expected disbursements are covered in taking a fee deposit with a pay link.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
