How payments made on a client's behalf are classified, funded, taxed and recorded — a recurring test of whether client money is being handled properly.
Get the classification of a disbursement wrong and the errors compound: the wrong account pays, the VAT is mishandled and the ledger entries follow suit. This chapter begins by distinguishing agency disbursements from principal disbursements, then works out which account each should ordinarily be paid from — including what happens when the client has no funds on account. It moves on to the contrasting VAT treatment of the two types when billing the client, and to the rules governing receipts: money on account of future costs, mixed receipts, and surplus client money at the end of a matter. The final sections set out the double-entry bookkeeping for each scenario and the common errors that breach the accounts rules, such as paying client money straight into the business account.
