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Where Taxpayers and Advisers Meet

Agent or not?

Nonimous
Posts:90
Joined:Thu Jul 16, 2009 12:39 pm
Agent or not?

Postby Nonimous » Thu Feb 27, 2020 4:51 pm

A Ltd is a company which offers prepaid debit cards
If a cardholder spends money with one of their partners (say the Y emporium) that person gets 5% cashback

So Ms X spends £100 at Y Emporium
Subsequently A Ltd refunds Ms X £5
A Ltd invoices Y Emporium £7 (the £5 and a handling charge)

I don't think A Ltd can exempt their invoice as being an intermediary for financial services. Y is just selling their goods, X just buying them
My query is whether A has to add VAT to the entire £7 or whether they can charge it on only the £2. I have now argued myself in 3 different directions

Trevor S
Posts:108
Joined:Tue Jan 01, 2019 12:37 am

Re: Agent or not?

Postby Trevor S » Thu Feb 27, 2020 11:59 pm

I'd always suggest looking at the contents to get an idea of the intended supply chain. But, without that, here are some thoughts/possibilities.

It's hard to see how X could be making any supply. So the £5 is not consideration for a supply by X to anyone.

Y is making a supply of goods to X. If the contract between A and Y forces A to pay £5 to X, the consideration for the goods will be £95 - see notice 700/7 section 10.1. The remaining £2 would be consideration for A's supply of services to Y.

Alternatively, if there is no contractual requirement for A to pass money to X, but A chooses to, section 10.4 of the same notice would apply. Consideration for the goods supplied by Y to X is £100. The £5 paid by A to X is an inducement, with no VAT implications. The full £7 would be consideration for A's supply of services to Y.

In either circumstance, could A's service to Y be VAT exempt?

See the third example in section 4.8 of notice 701/49. But this applies to the fee that a card provider deducts from the amount paid to the retailer. Your question says that A invoices Y for £7 - so is this charge in addition to the fee that any debit/credit card provider would normally deduct?

If that example in section 4.8 doesn't exempt the charge, you could in the first scenario above try to say that the £2 was consideration for the service to Y of paying the £5 cashback to X. But in reality if Y had simply wanted to reduce the cost to X by £5, they could have done so without involving A. The real benefit that A brings to Y is the introduction of customer X - a taxable service. Whether VAT needs to be accounted for on the full £7, or just the £2 is dependent on whether A is required by Y to pass £5 to X, or has just chosen to do so.

I realise that I've also now arrived at three possible answers! But hopefully the reasoning will help when you check contract documentation!

Trevor S
Posts:108
Joined:Tue Jan 01, 2019 12:37 am

Re: Agent or not?

Postby Trevor S » Fri Feb 28, 2020 12:03 am

Apologies for the predictive text on my phone ... the first sentence of my previous post should start: "I'd always suggest looking at the contracts..."


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