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11 de octubre de 20232 minute read

UK First-tier Tribunal decides that a company assumes liability for VAT on services (as a principal) despite its efforts to amend its contractual terms to agency

All Answers Ltd (AA) ran an online business where customers could order academic work written by third parties who were neither employed by AA nor disclosed to customers. AA would share the customer fee with the writer. AA argued that it merely acted as the writer's agent, and thus, was only obliged to account for VAT on its share of the customer's payment as agency commission. . HMRC disagreed, arguing that AA was acting as principal and was therefore required to account for VAT on the full payment received from the customer. This was upheld by UK FTT and Upper Tier Tribunal . Following the UTT's decision, AA updated its contracts to be consistent with the agency relationship it believed it held with the writers and on this basis considered only its share of the customer's payment to be subject to VAT for the subsequent periods. Despite undertaking the contractual changes, the FTT held that the circumstances of the transactions and overall business operations remained the same and certain terms in the updated contract still indicated that the 'core' obligations to deliver the product were still imposed on AA alone. This was consistent with the commercial and economic reality that AA made a single standard-rated supply of the academic work to its customers.

 
key takeaway

This decision serves as a reminder of the importance of looking at both contractual terms and economic and commercial reality in VAT analysis. Businesses, especially digital platforms, thus need to carefully review their arrangements in which they act as an agent, to ensure they are accounting for the correct amount of VAT.

Reference: All Answers Ltd v HMRC [2023] UKFTT 737 (TC) decision

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