How does one pass on expenses? - Part 4: Pass-through items

Should expenses such as travel, accommodation, or meal costs be charged to the client, there are several points to consider. Last time, we demonstrated whether you can and should deduct the VAT you paid when passing these costs onto the client, and the advantages and disadvantages of this. Today, in the final part of our series, we show you the possibility of offloading expenses through pass-through items.

In the last submissions of our series "How to pass on expenses?", we discussed questions regarding the model of charging expenses to the customer, where the expenses are considered part of one's own service. They occur in your own name and on your account and are then charged to the customer including the VAT you added. Another method of offloading expenses onto the customer is the method of pass-through items. According to Art. 24 Abs. 6 lit. b MWSTG, pass-through items are amounts which you receive from your customer as a reimbursement for expenses incurred in his name and for his account. These expenses, however, must be issued in the name of the customer and are listed separately in a separate invoice. In the best case, a separate account is established for the settlement via pass-through items.

Unlike the method of passing on costs, no VAT is added with pass-through items. In your accounting, pass-through items are also not recorded as business income/expenses in the profit determination because they do not economically lead to changes in the business assets. Thus, these expenses are not booked as costs and the reimbursement is not booked as income for you. In the client's accounting, however, these expenses are recorded, which is why it is important that all invoices and receipts are forwarded to the client. Well-known examples of pass-through items include services from external service providers, public fees, court fees, or customs duties (for instance as expenses of a freight forwarder).

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