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HMRC internal manual

VAT Taxable Person Manual

Scope and legal basis of VAT: Identifying the supplier

The majority of VTAXPER is devoted to guidance on identifying who has made the supply. In particular, two key issues, which have traditionally provoked many disputes, are covered:

  • agency
  • joint ventures and partnerships.

a. Agency

An “agent” arranges supplies which are made by someone else, his “principal”; a “principal” makes and receives supplies in his own right. An agent is obliged to account for tax only on the charge which he makes for his own services, and can only deduct input tax relating to those services. A principal must account for tax on the full value of the transaction, and normally can reclaim input tax on both the charges made to him for the agent’s services, and the purchases made on his behalf by the agent. It is thus vital that you determine correctly whether a supply has been made by a principal, or whether you are merely witnessing the passing on of a supply by an agent acting on the principal’s behalf. This issue is covered in the guidance as follows.

  • VTAXPER35500, VTAXPER36000, VTAXPER36500, VTAXPER37000 and VTAXPER37500, illustrated by the agency flowchart, will help you to determine whether the supply has been made by an agent or a principal.
  • Following on from this, VTAXPER38000, VTAXPER38500, VTAXPER39000 and VTAXPER40000 explain the procedure under which payments made by an agent to a third party on behalf of a client may be reimbursed to the agent by the client without the addition of VAT. These pages list the conditions which must be satisfied before the disbursement procedure may be used and gives guidance on how to identify disbursements in a number of trades.

b. Joint ventures and partnerships

When two or more parties come together for the purpose of a specific business venture, it can be difficult to decide whether the venture itself has made a supply, or whether the venturers are supplying each other prior to one of them supplying the final product. VTAXPER50000 provides guidance on how to resolve this issue, and explains the invoicing and accounting procedures to be followed in each situation.