Every matter you handle will involve payments to third parties — court fees, counsel's fees, searches, expert reports. These are disbursements, and how you treat them decides whether client money stays protected and the firm stays on the right side of the accounts rules. Getting it wrong mixes money that must be kept apart, so this is a skill you'll use on almost every file.
The key to all of it is one distinction: whether a disbursement is the client's liability or the firm's. That single question drives which account pays, how VAT works, and what you record. This lesson builds that understanding step by step.
What this lesson covers:
- Disbursements and Their Classification — what a disbursement is, common examples, and the crucial split between agency and principal disbursements.
- Which Account Pays the Disbursement — choosing between client and business account, and what to do when the client has no funds.
- VAT Treatment — how VAT differs for agency and principal disbursements, including reclaiming input tax.
- Client Money and Receipts — handling money received for future costs, mixed receipts, and returning surplus funds.
- Double-Entry Bookkeeping — the precise ledger entries for paying and advancing disbursements, including VAT.
- Common Errors — the billing requirement before transfers, and why client money must never go straight to the business account.