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VAT on Commission Paid

Discussion in 'General Business Forum' started by venderer, Jul 25, 2011.

  1. venderer

    venderer UKBF Newcomer Free Member

    Posts: 15 Likes: 1
    Hi - I am running a vending business. Machines are installed on sites and the site owner receives 20% of sales. At the moment I am not VAT registered, but in the near future I will be expanding the business and VAT will come into play.

    When I hand over the commision I complete an invoice FROM the site TO my business (as I am paying the site). First question is - is the commission paid VATable? If it is, which I expect it is, I presume I can reclaim the VAT (if the site is VAT registered).

    In this case - would I need to issue an invoice that includes the site's VAT number and full name and address?
  2. BarbaraF

    BarbaraF UKBF Regular Full Member

    Posts: 4,335 Likes: 682
    Yes you are absolutely correct.

    To simplify the understanding the VAT issue involved, substitute the words 'site commission' to simply 'rent'. Any sale or service in the UK attracts VAT and therefore technically each of your sites should issue you with a VAT invoice for the amount of commission you are paying them, in practicality vending operators have always issued these on the behalf of each of their sites as the site has no inclination to do it themselves! You are correct once again, it is necessary for the invoice to be uniquely numbered, dated (tax point), have the name and address of the business and if applicable their VAT number.

    One copy of the invoice should be left with the site so that they can put this 'sales invoice' through their books and pay their VAT obligation, the 2nd copy should go through your books like any other 'purchase' invoice and if a VAT invoice you will be able to claim the VAT content back in your VAT return for that quarter.

    I hope this clarifies the situation for you.

    Kind regards.

    Barbara
  3. venderer

    venderer UKBF Newcomer Free Member

    Posts: 15 Likes: 1
    Thanks Barbara

    Can you explain the benefit of changing the wording from 'commission' to 'rent' please.

    Also, are my calculations correct in the following example?
    I buy a can for 36p = 30p + 6p VAT (reclaimable)
    Sell it for £1 = 83p + 17p
    Pay 20% rent = 20p = 17p + 3p VAT (reclaimable)

    Profit = £1 - 30p (net cost) - 17p (VAT on £1) - 17p (net rent) = 29p
  4. venderer

    venderer UKBF Newcomer Free Member

    Posts: 15 Likes: 1
    oops -

    Profit = £1 - 30p (net cost) - 17p (VAT on £1) - 17p (net rent) = 36p
  5. BarbaraF

    BarbaraF UKBF Regular Full Member

    Posts: 4,335 Likes: 682
    Hi there

    Yes you are correct, but now you can see why we only pay 5% commission!

    Kind regards.

    Barbara