How to Bill Clients for Expenses: Reimbursable Expenses on Invoices

What counts as a reimbursable expense (and what doesn't)

A reimbursable expense is a cost you incur on a project that the client has agreed to pay back. You front the money, then recharge it. Classic examples: a train fare to a client site, a stock photo licence bought for their brochure, a domain and hosting plan set up in their name, or a specialist subcontractor you hired to finish part of the job.

What is not reimbursable is your ordinary cost of being in business. Your laptop, your accounting software subscription, your home office internet, your professional insurance — those are overhead. You recover them through your rate, not by itemising them on a client invoice. The line matters because clients push back hard when they see costs they consider "your problem" appearing on a bill.

The cleanest test: would this cost exist if the project didn't? A flight booked specifically for one client's workshop fails the "would exist anyway" test, so it's reimbursable. Your Adobe subscription would exist regardless, so it's overhead.

Agree the rules before you spend a penny

Most expense disputes are really scope disputes that surfaced late. Kill them in the contract or proposal. A short clause is enough:

Expenses: The Client will reimburse pre-approved out-of-pocket costs incurred on this project, including travel, accommodation, third-party software licences, and subcontractor fees. Costs above $150 per item require written approval in advance. Expenses are billed at cost and supported by receipts. Mileage is charged at rate per mile.

Three things that clause does for you:

• Sets an approval threshold. Anything above the limit needs a yes in writing. Below it, you're covered to just spend and recharge.
• States the markup policy up front (here, "at cost" — no markup). Decide this deliberately; more on markup below.
• Requires receipts, which signals you'll keep clean records and pre-empts the "can you prove that?" conversation.

Get the client to confirm expensive items by email before you commit. A one-line "Booking the Tuesday flight at £142, confirming that's approved" costs you nothing and turns a possible fight into a paper trail.

To mark up or not to mark up

There are two honest positions, and clients treat them very differently.

Billing at cost (pass-through). You recharge exactly what you paid. A £142 flight becomes a £142 line. This is the norm for genuine third-party disbursements and it builds trust because there's nothing to argue about. The downside: you carry the cash-flow burden and admin for free.

Adding a handling markup. Some agencies add 10–20% to expenses to cover the time spent booking, coordinating, and financing the cost. This is legitimate as long as it's disclosed. What damages relationships is a hidden markup a client discovers by seeing the original receipt. If you mark up, either state the percentage in your contract or fold the handling into a separate "coordination fee" line rather than inflating the receipt total.

A middle path many freelancers use: pass genuine disbursements through at cost, but bill your own time spent managing a subcontractor or sourcing materials as normal billable hours. That keeps the expense honest and still pays you for the work.

For mileage, use your tax authority's standard rate as a defensible number rather than guessing. In the US the IRS sets an annual business mileage rate; the UK uses HMRC approved mileage allowance payments (commonly quoted as 45p per mile for the first 10,000 miles); Canada and Australia publish their own per-kilometre figures. These change, so check the current rate for your country each tax year.

How to list expenses on the invoice

Keep expenses visually distinct from your fees. Clients scan invoices, and burying a £600 subcontractor cost inside your service total invites suspicion. Two structures work well.

Option A — a dedicated expenses block:

Option B — a separate expenses invoice entirely, cross-referenced to the project. Useful when expenses are large or arrive on a different timeline than your fees, and when a client's accounts team codes reimbursements to a different budget.

Either way, name the specific supplier, date, and purpose on each line. "Travel — $64" is weak. "Return train fare, London↔Bristol, 12 Jun client workshop — $64" gets approved without a follow-up email. Attach the underlying receipts as a PDF; don't wait to be asked.

If you're building invoices by hand, the layout principles in how to make an invoice in Excel, Word or Google Docs apply here too — a clean expenses subtotal is just another block.

The VAT and sales-tax part people get wrong

This is where recharging expenses gets genuinely technical, and the rules differ by tax and by country. Two concepts get confused constantly: recharges and disbursements.

Recharges vs disbursements (VAT-registered businesses)

A recharge is a cost you incurred for your own business in order to deliver the service, which you then pass on. Your train fare to a client meeting is your cost — you bought the ticket, you travelled. When you recharge it, it becomes part of the consideration for your service, so in the UK and similar VAT systems you generally add VAT to it at your service rate, even if the original ticket was zero-rated or VAT-exempt. That surprises people: a zero-rated train fare recharged to a client typically gets 20% VAT added because it's now part of your taxable supply.

A disbursement is a cost you paid as the client's agent — the goods or services were supplied to the client, not to you, and you merely handled the payment. A statutory fee (say, a companies-registry filing fee paid on the client's behalf) can qualify. Disbursements are passed on at exact cost with no VAT added by you, but they must meet strict conditions: the client received the supply, you were acting as their agent, and you show the cost separately. Getting this wrong means under- or over-charging VAT.

Practical takeaway for UK and EU-style VAT: most of what freelancers call "expenses" are actually recharges, not disbursements, so you add VAT. Read UK VAT invoices explained and, if you're near the threshold, do I need to register for VAT. Rules vary — confirm your specific situation with HMRC or an accountant.

US sales tax

Whether a reimbursed expense is taxable depends on the state and on whether the underlying item was taxable and how it's characterised. Reimbursed costs that are part of a bundled taxable service can be taxable; a separately stated pass-through of a non-taxable item may not be. There's no single national rule. The overview in US sales tax on invoices is a starting point, but check your state.

Canada and Australia

For GST/HST in Canada, recharged expenses generally follow the tax treatment of your overall supply; see Canada GST/HST invoice requirements. In Australia, GST on reimbursements versus true disbursements follows a similar agent-vs-principal logic to the UK; a valid tax invoice still needs the right GST breakdown.

One more trap: don't double-count VAT/GST you've already reclaimed. If you're VAT-registered and reclaimed the input tax on that £79 stock photo, you recharge the £79 net (pre-VAT) figure and add your own VAT on top. Recharging the VAT-inclusive amount and adding VAT again overcharges the client.

Keep the receipts, and keep them findable

Every recharged cost needs a supporting document you can produce on demand: the supplier invoice, the ticket, the mileage log. Tax authorities can ask you to justify both the expense you claimed and the amount you recharged. Retention periods vary (commonly several years), so store them with the project. The practical mechanics are covered in how long to keep invoices and receipts.

A simple system: create a folder per project, drop every receipt in as you incur it, and log the date, supplier, amount, and whether tax was charged in a spreadsheet. When invoice day arrives the expenses block writes itself.

Handling the awkward cases

• The client rejects an expense after the fact. If it was under your approval threshold and inside the contract's categories, point to the clause. If it was over the threshold and you didn't get sign-off, you may have to eat it — which is exactly why the threshold exists.
• A subcontractor you're recharging. You're the principal: you hired them, you pay them, you recharge the client. Their invoice is addressed to you, and you issue your own invoice to the client. Don't just forward the sub's invoice.
• Foreign-currency expenses on an overseas project. Convert at the rate on the date you paid, note the rate, and be consistent. Invoicing international clients covers the currency and payment side.
• Expenses that arrive after final payment. Bill them promptly on a short-dated invoice rather than sitting on them. A late "oh, and there's also £200 of expenses" three months on reads as disorganised and gets queried.

Recharging expenses well is mostly about being boringly transparent: agree the rules in writing, spend inside the agreed limits, itemise clearly, attach the receipts, and apply the right tax treatment for your jurisdiction. Do that and expenses stop being a source of friction and become just another clean line on the invoice.