Profit Sharing and VAT

[jack52]

I know this is a somewhat complex area and of course for an actual agreement I would seek professional advice but I am trying to understand the possible scenarios in which a profit share is VAT exempt.

From reading some HMRC guidance it seems to me that a 'true' profit sharing agreement is VAT exempt/out-of-scope but a lot of profit shares are really payment for services and not VAT exempt.

Consider the following example:

- ABC Ltd enters into an agreement with XYZ Ltd whereas employees of ABC Ltd undertake business in XYZ Ltd's name. i.e. all invoices are in the name of XYZ Ltd.
- What I mean is ABC Ltd is providing all the equipment i.e. people, office space, computers, knowledge, etc but XYZ Ltd invoices the clients i.e. the clients only ever see XYZ Ltd and know nothing about ABC Ltd.
- ABC Ltd receives say 75% of profits

is that payment VAT exempt? If not who is providing a service to who?
does this changes if the services provided by Firm XYZ are VAT exempt or VAT out-of-scope?

 

[Scalloway]

ABC is providing a service to XYZ.

 

[jack52]

ABC is providing a service to XYZ.

but you could argue that XYZ is providing its balance sheet and good name to ABC

 

[Scalloway]

Are the customers aware that there is a long term relationship between the companies? I want something done and get XYZ to do it. Will I even notice who actually does the work? Is it repeat business or one offs?

 

[jack52]

Are the customers aware that there is a long term relationship between the companies? I want something done and get XYZ to do it. Will I even notice who actually does the work? Is it repeat business or one offs?

customers only see XYZ and the employees (even though of ABC) will present themselves as XYZ not as agents of XYZ.