VAT on commision

scottymac1979 · Jan 6, 2010

Hi,

Apologies if it has been covered before. I have tried searching the forum for an answer but can't seem to find exactly what I need.

My company has designed a product, copyrighted, registered trademark etc.

A large company working in the field has approached us with a view to becoming an official supplier of this product.

They are VAT registered, at present we are not (both UK companies)

The intention is for them to manufacture and distribute to our design using our branding then take care of the marketing etc. We simply receive a commission (say £100) for each unit sold.

At present this sounds great, however, I am just looking to the future, VAT registration and how this would affect the prices.

I was under the assumption that once VAT registered we would receive £100+VAT and have been looking for something along these lines writing into the contract so things are clear from the start.

Their initial reaction was that there is no VAT on commission so we would receive £100 and there is no VAT content to be paid.

Is this correct ? Obviously I don't want to get stung further down the line.

Many thanks for your time

gillyfleur · Jan 6, 2010

My initial reaction is that there is VAT on commission and the company is wrong - but I have a similar problem with a client who receives an invoice from a supplier and the supplier deducts commission he owes my client on the invoice. He shows VAT on the supply part of the invoice but not against the commission and I therefore am questioning my own thoughts. Do they know something I don't ? I am going to call the VAT helpline tomorrow so when I've clarified the position I'll let you know the answer - unless someone comes back with the proper answer between now and then of course !

Jenni384 · Jan 6, 2010

scottymac1979 said:
They are VAT registered, at present we are not (both UK companies)
...

I was under the assumption that once VAT registered we would receive £100+VAT and have been looking for something along these lines writing into the contract so things are clear from the start.

Their initial reaction was that there is no VAT on commission so we would receive £100 and there is no VAT content to be paid.

If they are VAT registered it makes no difference to them whether they are paying you with VAT or not - they can reclaim the VAT they pay to you once you are registered, all it affects for them is a few months cashflow.

Commission is standard rated. I can't see from the info you've provided how it could not be. There are 'margin' schemes where part of the sale is VATable and part isn't but I don't think it applies to commission like this. But then I'm not a VAT expert and am happy to be corrected.

David Griffiths · Jan 6, 2010

They are probably getting mixed up with insurance and similar financial commission which are exempt in normal circumstances. I agree that commission in this context is standard rated.

scottymac1979 · Jan 7, 2010

Thanks to all for the replies

gillyfleur - I called the VAT helpline (should have though of that lol) and it was confirmed that commission is always subject to VAT

I think they must have been mixed up with something else.

Thanks again, great forum !

gillyfleur · Jan 7, 2010

well done, saves me a phone call. I'll call the supplier and point out the error of their ways now ! Thanks for that - we both got an answer

scottymac1979 · Jan 7, 2010

gillyfleur said:
well done, saves me a phone call. I'll call the supplier and point out the error of their ways now ! Thanks for that - we both got an answer

No problem, if it's of any use the VAT helpline referenced public note 700, section 7 (whatever that means !) might be useful though. Thanks to all again.

Jenni384 · Jan 7, 2010

Glad you got this one sorted.

It's worth noting that all the HMRC helpline will do is point you to the relevant VAT notice. They won't give you a definitive answer, just tell you what the legislation states.
As in this case, the answer is pretty clear but for future reference bear in mind you actually can't rely on what they tell you all the time.

In other cases, the relevant VAT notice isn't easily applied to your particular question - which is where VAT specialists and VAT-savvy accountants come in. Just a cautionary note

scottymac1979 · Jan 7, 2010

Jenni384 said:
Glad you got this one sorted.

It's worth noting that all the HMRC helpline will do is point you to the relevant VAT notice. They won't give you a definitive answer, just tell you what the legislation states.
As in this case, the answer is pretty clear but for future reference bear in mind you actually can't rely on what they tell you all the time.

In other cases, the relevant VAT notice isn't easily applied to your particular question - which is where VAT specialists and VAT-savvy accountants come in. Just a cautionary note

Actually when I spoke with the VAT office the notice that they pointed me to didn't specifically say 'commission on VAT', the company I deal with is pretty large so I wouldn't be surprised if they had some VAT whizz who's found a loop hole. Still wouldn't help me though, so I better play safe

semsley · Jan 7, 2010

I am now wondering if one of my clients is OK on the VAT wrt commission. They are a registered charity and one part of the business (very small part) is running an agency for actors. The hirer of the actor is invoiced for the fee plus VAT then my client splits the net fee 80-20. I hope this is correct treatment.

Richard231 · Jan 8, 2010

I would have said that this is the correct treatment. The charity aren't charging commission for finding the actor, they are charging for providing the actor, then subcontracting the role of actor to the actor (if that makes sense!?)

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VAT on commision

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