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HMRC internal manual

VAT Taxable Person Manual

Issues to consider: Employment status: Introduction and law

VTAXPER32000 can help you to decide whether a supply has been made by a self-employed person acting independently or by an employee acting on behalf of his or her employer.

The law

UK VAT law on the question of employment status is governed by Articles 9 and 10 of Directive 2006/112/EC (The Principal VAT Directive), which deals with the subject of taxable persons. Article 9(1) of the Directive defines a taxable person as follows

“Taxable Person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Article 9(2) describes those economic activities.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

Article 10 clarifies the meaning of the word independently in article 9(1).

The condition in Article 9(1) that the economic activity be conducted “independently” shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer’s liability.

The effect of this is that where employees act on behalf of their employers, they are not taxable persons and their activities are therefore outside the scope of VAT. UK VAT law expresses this in the VAT Act 1994 as follows

VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.