Vat on Commission

[cranachan]

We have recently registered for VAT as our turnover has exceeded the threshold. We retail products where we get a mark up on the wholesale price but we also get a commission based on volume. Our supplier (the manufacturer/importer) is asking for a VAT invoice for the commission. We are concerned that if we include this in Output Tax we will lose 15% of the commission, but are not sure how else to treat it.

Please advise.

thanks

[Sheiky Baby]

I'd advise reading section 22 of The VAT Guide to establish the VAT treatment of your supply.

[cranachan]

Section 22 does not help, it covers an Agent who arranges supplies on behalf of a principal. We buy goods wholesale from the supplier and the sales contract is between us and the customer. We account Output Tax on the sales and Input Tax on what we buy. Each month we get a commission payment from the supplier based on sales volume the previous month. We are asked to raise a VAT Invoice for this payment, my question is how do we account for this in our VAT return?

[Paul Taylor]

What you are receiving sounds more like a contingent discount than a "commission payment"; i.e. a retrospective discount on the price you paid for the goods contingent upon you reaching certain criteria.

The correct way to account for this is not through an invoice from you to the supplier. You have not made a supply to them therefore you cannot invoice for any supply.

The correct way is either for your supplier to issue a Credit Note or for you to issue a Debit Note.

If you were entitled to recover the VAT in full on the original purchase of the goods, you can agree with your supplier that the credit / debit note can be issued without VAT.

If your supplier will not agree to this, you should ask that VAT be added on top of the discount you receive because your supplier will be able to recover the VAT shown from HMRC.

Regards

Paul Taylor
Senior VAT Consultant
http://www.dains.com/