Further tax implications on a revenue share model?

[Simon12343]

Hi folks, first post... please go easy on me! I need a bit of advice.

I am a UK based company providing a service to the UK based public on behalf of my UK based customer. As an example, let's say I charge members of the public to park on someone's land. They rock up, I process payment and issue an invoice for £25 + VAT. I declare the VAT and pay HMRC.

Our agreement with the landowner is a 70/30 split of the remaining revenue (in their favour) which we pay to them quarterly. Is it a simple case of: they get £17.50 we get £7.50 so we generate a remittance and transfer their share of the cash? Or are there any further tax implications even though the VAT liability was fulfilled at the point of the original transaction?

Apologies if I am missing something really obvious and thanks in advance.

 

[Frank the Insurance guy]

Hi @Simon12343 ,

Have you spoken to your accountant - they will be able to confirm the tax implications based on your exact details.

In terms of the invoicing side of things, I don't think there is much else to consider, but check with your accountant. Outside of the invoicing there are all sorts of tax implications (corporation tax for example!).

 

[NicoJ]

Hi folks, first post... please go easy on me! I need a bit of advice.

I am a UK based company providing a service to the UK based public on behalf of my UK based customer. As an example, let's say I charge members of the public to park on someone's land. They rock up, I process payment and issue an invoice for £25 + VAT. I declare the VAT and pay HMRC.

Our agreement with the landowner is a 70/30 split of the remaining revenue (in their favour) which we pay to them quarterly. Is it a simple case of: they get £17.50 we get £7.50 so we generate a remittance and transfer their share of the cash? Or are there any further tax implications even though the VAT liability was fulfilled at the point of the original transaction?

Apologies if I am missing something really obvious and thanks in advance.

Are you an agent of the landowner? Is the landowner VAT registered? It could be as you say, or it could be that you need to pay £21 to the landowner.

 

[Simon12343]

Are you an agent of the landowner? Is the landowner VAT registered? It could be as you say, or it could be that you need to pay £21 to the landowner.

Thank you, the land owner is a customer, in that we have set up an agreement to split revenue in return for us managing the service. The land owner will be VAT registered.

 

[NicoJ]

Thank you, the land owner is a customer, in that we have set up an agreement to split revenue in return for us managing the service. The land owner will be VAT registered.

You need to establish whether you are the principal or an agent in this relationship as this affects how you account for the transactions. To answer the specific question posed though, you would pay £17.50 + VAT to the landowner.

 

[Simon12343]

You need to establish whether you are the principal or an agent in this relationship as this affects how you account for the transactions. To answer the specific question posed though, you would pay £17.50 + VAT to the landowner.

Thanks again, Nico. So I guess we are the agent, in that our customer owns the property and sets the price; where we provide a service which facilitates the transaction.

So would the breakdown of costs be as follows:

£30 payment taken. Receipt for £25 + VAT is issued.
We declare income and pay the £5 VAT.
We create a statement to the landowner detailing each transaction. We pay them £17.50 for their share of the revenue PLUS vat on top? (Total paid out - £21)

So net profit for us is £3.76 (including 24p stripe fee)?

I am just unsure why we are paying VAT twice in this scenario.

Thank you very much for your help!

 

[lesvatadvice]

You may be correct! You should have a specialist review the entire arrangement to confirm your understanding.
And, if you prepare the landowner's invoice/statement, you will need to operate VAT self-billing.
VAT is not a somple tax

 

[NicoJ]

Thanks again, Nico. So I guess we are the agent, in that our customer owns the property and sets the price; where we provide a service which facilitates the transaction.

So would the breakdown of costs be as follows:

£30 payment taken. Receipt for £25 + VAT is issued.
We declare income and pay the £5 VAT.
We create a statement to the landowner detailing each transaction. We pay them £17.50 for their share of the revenue PLUS vat on top? (Total paid out - £21)

So net profit for us is £3.76 (including 24p stripe fee)?

I am just unsure why we are paying VAT twice in this scenario.

Thank you very much for your help!

You aren't paying VAT twice. You really need to check whether you are the agent or the principal here, I can't stress that point enough.

If you are the agent, then the £30 is not yours. Your turnover would be £7.50 which you would charge VAT on, receiving £9 in total. The remainder would be remitted to the landowner. You would pay £1.50 over to HMRC for the VAT.

If you are the principal your turnover would be £25 (you would receive cash of £30). The "share" would be a cost of sale £17.50 (which would have VAT on so you would pay them £21). You would, again, pay over £1.50 VAT to HMRC.

 

[Simon12343]

You aren't paying VAT twice. You really need to check whether you are the agent or the principal here, I can't stress that point enough.

If you are the agent, then the £30 is not yours. Your turnover would be £7.50 which you would charge VAT on, receiving £9 in total. The remainder would be remitted to the landowner. You would pay £1.50 over to HMRC for the VAT.

If you are the principal your turnover would be £25 (you would receive cash of £30). The "share" would be a cost of sale £17.50 (which would have VAT on so you would pay them £21). You would, again, pay over £1.50 VAT to HMRC.

I understand this now, thank you for breaking it down.

 

[Simon12343]

Thanks @NicoJ , @Frank the Insurance guy and @lesvatadvice for your help

 

[Gyumri]

See also vat on 3rd party sales para 22 onwards:-

VAT guide (VAT Notice 700)

The guide to VAT rules and procedures.

www.gov.uk

 

[GLAbusiness]

One way to look at this (and as mentioned above there are others depending on you being a principal or agent) is:

The land owner is not a customer, but is a supplier. In this scenario you buy the parking space from the land owner, so it is a cost of sale. You pay the £17.50 plus vat. Then you charge your customer the £25 plus Vat. So, on your VAT return you owe HMRC the vat from your customer but you reclaim the vat from the landowner. So, VAT is not charged twice.

As I said, this is only one possible scenario. You need to establish the facts of the situation.

 

[Frank the Insurance guy]

You pay the £17.50 plus vat.

Only if the landowner is VAT registered and their invoices are subject to VAT, otherwise it will be just the £17.50.

 

[GLAbusiness]

Only if the landowner is VAT registered and their invoices are subject to VAT, otherwise it will be just the £17.50.

OP has said that the land owner is vat registered