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HMRC internal manual

VAT Retail schemes guidance

Mail order traders: Agents’ own purchases (AOP): VAT treatment - discounts v commission

Some businesses interchange the terms commission and discount; but the terminology used does not affect the nature of the transactions or the correct tax position.

Commission is awarded to agents in return for arranging sales to customers and does not lead to any reduction in the value of the supplies concerned. Although some businesses may attempt to argue that agents often pass on all or part of their commission to their customers, such arrangements do not affect the contract between the mail order company and its customer so the value of the supply for VAT purposes is not reduced.

In the case of purchases where the agent is the customer, the commission awarded is seen as a true discount and the value of the supply may be reduced at the appropriate time (see VRS9220). Procedures for quantifying AOP represent a major revenue risk at these businesses.