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Acting as An Agent for VAT Purposes

Acting as An Agent for VAT Purposes

VAT

In the matter of All Answers Limited vs HMRC, the Appellant ran a largely online business whereby customers were able to order various essays, pieces of coursework, etc, written by third-party writers who had no direct interaction with the customers. All Answers Limited would retain two thirds of the fee paid by the customer, with the remaining third being paid to the writer. The Appellant’s position was that they were acting as an agent for the various writers and as such the supply of academic work was between the writer and the customer. The VAT implications of this arrangement were such that the Appellant was not obliged to account for VAT on the full amount paid by the student, although VAT was still accounted for on the two-thirds of the payment that were considered the commission element.

HMRC contended that VAT should be accounted for on the full payment received on the basis that a single standard-rated supply of academic work is being made by All Answers Limited. Consequently the proportion of the fee paid to the writer constitutes consideration for a separate supply made between the writer and the Appellant. As writers are not usually registered for UK VAT, All Answers Limited would be unable to recover any input incurred in relation to this separate supply.

When this case was heard by the First-Tier Tribunal they determined that, due to a clause in the contract it was the Appellant who incurred liability to the customer should the written work received from the writer be insufficient or delivered late. On appeal of this decision, the Upper-Tribunal agreed on the basis that, as it was solely the Appellant who had a legal relationship with the customer and that they would be ultimately liable in the event of the work proving inadequate, it follows that when payment is made to the writer this is consideration for a separate supply made by the writer to the Appellant (with the Appellant making the supply to the customer). As a result, VAT was due on the full amount received by the Appellant from the customer.

If you or your client have agency agreements in place similar to that which formed the basis of this case and you wish to confirm that your VAT treatment of such supplies are correct, please call our free VAT helpline and speak to one of our expert consultants.

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