Agents and VAT

You’re an agent if you act for, or represent, someone else (your principal) in arranging supplies of goods or services. The supplies that you arrange are made by, or to, the principal you represent.

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Principals cannot avoid their liability to account for VAT on their supplies or to pay VAT on their purchases by using an agent.

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To act as an agent, you must have agreed with your principal to act on their behalf in relation to the particular transaction concerned. This may be a written or oral agreement, or merely inferred from the way you and your principal conduct your business affairs. Whatever form this relationship takes:

• it must always be clearly established between you and your principal, and you must be able to show to HMRC that you’re arranging the transactions for your principal, rather than trading on your own account

• you will not be the owner of any of the goods, or use any of the services which you buy or sell for your principal

• you will not alter the nature or value of any of the supplies made between your principal and third parties​

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How agents are involved with VAT

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As an agent, you’ll usually be involved in at least 2 separate supplies at any one time, the:

• supplies made between your principal and the third party

• supply of your own services to your principal, for which you will charge a fee or commission — the normal VAT rules apply to your services as an agent

It’s important to distinguish between these separate supplies.

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Liability of supplies

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The liability of the supply of your own services to your principal will not always be the same as the liability of the supply between your principal and the third parties.

 

Selling agents

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If you’re a selling agent and the supply you’re arranging on behalf of your principal is taxable, your supply of services to your principal in arranging that supply is standard-rated. But, if the supply you’re arranging for your principal is exempt from VAT, your supply of services in arranging that supply may also be exempt.

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Buying agents

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If you’re a buying agent and the supply you’re arranging from the third party to your principal is taxable, your supply of services to your principal in arranging that supply is standard-rated. But, if the supply you’re arranging by the third party to your principal is exempt, your supply to your principal in arranging that supply may also be exempt.

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Intermediary services

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You may be able to zero rate the supply if you make arrangements for:

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• the export of any goods to a place outside the UK

• a supply of services which is itself zero-rated as work on goods for export from the UK

• any supply of services which is made outside the UK

 

Agents acting in the name of their principals

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As an agent, you may sometimes take a minor role in a transaction, and simply introduce your principal to potential customers or suppliers (third parties).

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At other times you may be more closely involved. You might:

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• receive or deliver goods

• hold a stock of goods for your principal

• make or receive payment

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But, provided that the invoicing for the supply is between the principal and the customer, the only supply for VAT purposes being made by you will be the provision of your services to your principal.

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Invoicing Arrangements

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If your principal is VAT registered, their supply to the third party is taxable and you’re registered for VAT then:

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• Your principal must issue the VAT invoice made out to the customer and send it either direct to the customer, or through you to pass on to the customer, you only account for VAT on your supply of agent’s services to your principal

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If your principal is not registered for VAT but you’re VAT registered then:

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• No VAT is due on the supply arranged by you but you must account for VAT on your supply of agent’s services to your principal, and possess evidence that you’re arranging the supply on behalf of your principal. The supply should be readily distinguishable in your records from supplies on which VAT is charged.

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Agents Registered for VAT who act in their own name

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You may sometimes be empowered by your principals to enter into contracts with a third party on their behalf. In such cases, particularly if your principal wishes to remain unnamed, you may receive and issue invoices in your own name for the supplies concerned.

An agent who acts in such a capacity is usually referred to as an undisclosed agent or a commissionaire.

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In commercial terms, the transaction you arrange as an agent remains between your principal and the third party involved. But, you should note that these rules apply to supplies of goods and services.

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Goods

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If you issue an invoice in your own name for a supply of goods which you arrange for your principal, then for VAT purposes only, you must treat the transaction as though it was both a supply to you and a supply by you.

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Services

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If you’re an agent arranging a supply of services and both you and the supplier are registered for VAT, and the supplies are taxable, then you may treat yourself as both receiving and supplying those services.

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If you do this, you’ll be regarded as acting in your own name and treated for VAT purposes in the same way as an agent arranging supplies of goods.

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In both circumstances, you’re liable to account for VAT on the supply of the goods or the services, as well as on your own supply of services to your principal. But you may also reclaim as input tax any VAT charged on the supply made to you. As you do not alter the nature or value of your principal’s supply, the amount of input tax reclaimed will normally be equal to the output tax you account for on that supply.

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You must not reclaim input tax under this procedure before you have accounted for the relevant output tax.

You must include the value of the supply in your VAT account and on your VAT Return as a supply both made, and received, by you.

It’s important to remember that the VAT treatment of the supply you arrange does not affect your liability to account for VAT on your own supply of services to your principal.

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 VAT Registration

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If you’re an agent, and the value of your taxable supplies is above a certain limit you must register for VAT. The value of your taxable supplies includes both the value of your taxable supplies to your principal and the value of any taxable supplies which you make in your own name.

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Invoicing Arrangements​

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If your principal is registered for VAT, and their supply to the customer is taxable then

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• Your principal must issue a VAT invoice to you for the actual price paid by the buyer, and you may then reclaim any VAT as input tax or use the self-billing procedure.

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• If the customer is registered for VAT (or Not registered) you must account for output tax on the onward supply to the customer, and you must issue a VAT invoice to the customer, and
  you must also account for VAT on the value of your own supply of services in arranging the supply on behalf of your principal

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This example illustrates the accounting procedure.

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A VAT-registered person supplies standard-rated goods or services for £100 plus VAT to another VAT-registered person.

The supplier uses an agent who acts in their own name. The agent takes a commission of 10%.

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The seller must issue a VAT invoice to the agent showing:

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Amount

Goods or services   £100.00

20% VAT                  £ 20.00

Total                         £120.00

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The seller accounts to HMRC for £20.00 output tax. The agent may reclaim £20.00 as input tax.

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The agent must issue a VAT invoice to the buyer showing:

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Amount Goods or services   £100.00

20% VAT                                 £ 20.00

Total                                        £120.00

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The agent accounts to HMRC for £20.00 output tax.

The buyer may reclaim £20.00 as input tax subject to any partial exemption considerations (read paragraph 13.1).

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The agent must also issue a VAT invoice when making a charge to the principal (the seller) for agent’s services showing:

Amount 10% commission       £10.00

20% VAT                                     £ 2.00

Total                                            £12.00

 

The agent accounts to HMRC for £2.00 output tax. Subject to the normal rules the seller can reclaim input tax of £2.00.

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In practice, the amount of money that passes between the agent and the principal in this example might only be £108.00, since the agent may deduct commission from the amount collected from the buyer, paying the balance to the principal. But, the full VAT invoicing procedure must still be followed.

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UK, EU and international supplies involving UK undisclosed agents

 

For UK undisclosed agents involved in domestic supplies

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If you’re a UK undisclosed agent involved in domestic supplies, the difficulties outlined in this section may not apply and there’s no intention to disturb the current commercial arrangements where you may be invoicing your principals for a separate supply of your own services, as described in paragraph 22.6.

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But, if you want to, you may adopt the alternative VAT treatment set out in this section for your domestic transactions.

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VAT treatment of supplies involving UK undisclosed agents

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Introduction

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This section deals with the VAT treatment of international supplies of goods or services made through UK undisclosed agents. It also gives information on the option which allows UK undisclosed agents involved in domestic supplies to use this VAT treatment.

Undisclosed agents take part in a supply of goods or services while acting in their own name but they’re supplying the goods or services on behalf of another. This means the third party to the transaction is often unaware of the involvement of an agent.

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The VAT treatment

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Agents involved in non-UK, non-EU or EU supplies, who bring themselves within the terms of section 47 VAT Act 1994 by acting in their own name, are treated as principals for VAT purposes and seen as taking a full part in the underlying supply of any goods or services.

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Consequently, as the agent is taking a full part in the supply, they’re no longer recognised as making a separate supply of their own services to their principal and the commission they retain is seen as subsumed in the value of the onward underlying supply.

This treatment is for VAT purposes only. It has no impact on the legal status of agents or the way they’re treated for the purposes of other taxes or legislation.

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Impact of the VAT treatment

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(a) Goods imported into the UK, or acquired into Northern Ireland from the EU

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Note, for the purposes of the following illustration, the price paid by the final customer is £100, the commission retained by the agent is £20, and the money passed back to the principal is £80, all net of VAT.

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If you’re a UK undisclosed agent then the VAT value at importing goods on behalf of a non-UK principal importation is decided by the customs rules as previously, and will not change acquiring goods into Northern Ireland from a principal in an EU member state acquisition is £80 by virtue of section 20(3) VAT Act 1994 based on the value of the invoice raised by the UK and EU principal to you.

 

You’re responsible for Intrastat declarations and must account for acquisition tax

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As a UK undisclosed agent that’s treated as a principal, you’ll be entitled to recover import or acquisition VAT in Northern Ireland, subject to the normal rules.

 

You will then:

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• Make an onward supply in your own name to your customer for £100

• Account for any output tax due​

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Your commission of £20 will be seen as subsumed in the value of your onward supply of the goods, and you’re no longer regarded as making a separate supply of your own services to your non-UK principal.

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You may treat costs incurred in the UK, such as warehousing and handling, as supplies to you and you may recover the input tax on them, subject to the normal rules.

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(b) International services

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If you’re a UK undisclosed agent involved in international services and you act in your own name under section 47(3) VAT Act 1994, you’re treated as a principal.

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The services are seen as supplied to you as though you’re a principal, and supplied on by you. This means that you will be treated as taking a full part in the supply chain.

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As in the case of imported goods, your commission is seen as subsumed in the value of the onward supply. You’re no longer regarded as making a separate supply of your own services to your principal.

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Section 47(3) applies in this way in all cases where agents act in their own name in relation to international services. It applies to services being supplied both to and from the UK.

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Contains public sector information licensed under the Open Government Licence v3.0.

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