Tax treatment of client funds for the payment of disbursements

In the exercise of professional activities, it is common for clients to make advances or deposits of funds intended to cover specific expenses that the professional must pay on their behalf. This practice, common in sectors such as legal services, has raised doubts about whether these cash movements should be included in the IRPF taxable base.

What the DGT has ruled

The Dirección General de Tributos (DGT) has established that funds delivered for the purpose of making payments for expenses on behalf of a client do not have the nature of income from economic activity. This criterion is based on the fact that these amounts correspond to expenses that are the responsibility of the client, which the professional satisfies upon prior provision of funds.

Consequently, the regulations of Personal Income Tax (Law 35/2006) imply that both the receipt of these amounts into the professional's account and their subsequent restitution to the client or the direct payment of the disbursements do not affect the determination of the net income from the activity.

What this means for you

If you are a liberal professional managing third-party funds to cover external costs, this criterion provides legal certainty regarding the accounting of such movements. It means that:

• Money received for disbursements should not be considered income from the activity.
• The outflow of that money to pay the expenses should not be recorded as a deductible expense for your own activity, as the expense belongs to the client.
• There is no alteration of your net income due to the mere transit of these funds through your bank account.

What you should do

To avoid erroneous interpretations by the Administration, it is fundamental to maintain a clear separation between the activity's own income and the funds received for disbursements. It is recommended to document each movement through expense invoices stating that the amount has been covered by the client, ensuring that the traceability of the funds is unequivocal in the event of a possible inspection.