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HMRC internal manual

VAT Taxable Person Manual

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HM Revenue & Customs
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Agency and disbursements: how to distinguish agency: overview

VAT legislation simply defines how agents should account for supplies for VAT purposes: it is silent on what is meant by an ‘agent’. Moreover, the word ‘agent’ is often applied to people who are not agents at all: for example, car dealers may describe themselves as ‘agents’, although they are actually principals who buy and sell cars in their own right.

However, there are two legal cases in particular which give us some indication as to where an agency exists.

  • In E Johnson v Commissioners, QB July 1980, [1980] STC 624, Justice Woolf held that where an agency is present

There must be two consenting parties with the one consenting that the other will represent him or act on his behalf. 

  • The non-VAT case of Garnac Grain Co. Inc. v HMF Faure and Fairclough Ltd ([1968] AC 1130n, [1967] 2 All ER 353), summarises this approach well:

The relationship of a principal and agent can only be established by the consent of the principal and agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves, and even if they have professed to disclaim it. The consent must however have been given by each of them, either expressly or by implication from their words and conduct.

We have therefore developed the following approach in order to help us to determine whether a business acts as agent or principal.

  • Firstly, assemble a package of information which is vital before a decision may be made. This is discussed further in VTAXPER36660.
  • Then consider whether both parties have agreed to act as agent and principal. This is discussed further in VTAXPER36740.
  • Then consider a further six indicating factors which are normally present in an agent/principal relationship. These are discussed in VTAXPER36820.
  • Finally, double-check that the actions of the parties remain consistent with what they originally agreed to do. There is more on this in VTAXPER36900.

This approach is outlined in the agency flowchart (Word 35KB). If, having followed this approach, you conclude that your trader is a principal and not an agent, your trader must account for VAT on the full value of the main supply. If, however, you conclude that your trader is an agent, you must proceed to VTAXPER37000 and VTAXPER37500 for an explanation of the accounting consequences.

A decision that a trader is an agent or a principal is not in itself appealable to a VAT tribunal. If the trader disputes your decision, you will need to identify a sample supply before proceeding to tribunal.

The Agency Flowchart as a table

You may find it easier to read the agency flowchart in the following tabular form.

Question 1 - Have you obtained the information listed in VTAXPER36660? Yes - Go to Question 2.
No - Obtain the package of information and go to question 2.    
     
  Question 2 - Is there a written agreement by which both parties consent to act as agent and principal? Yes - Go to Question 3.
No - Go to Question 4.     
  Question 3 - Consider the agreement against the factors listed in VTAXPER36820. Emphasis may vary in particular trades, so see if your trade is listed in VTAXPER60000. Is agency indicated? Six factors all indicate agency OR after consulting VTAXPER60000 the balanced view is that Agency is indicated - Go to Question 5.
All six factors do not indicate agency OR after consulting VTAXPER60000 the balanced view is that agency is not indicated.- Agency does not exist.     
  Question 4 - Consider the actions of both parties against against the factors listed in VTAXPER36820. Emphasis may vary in particular trades, so see if your trade is listed in VTAXPER60000. Do all these factors indicate agency? Yes - Agency exists.
No - Agency does not exist.     
  Question 5 - Are the actions of both parties consistent with their agreement? Yes - Agency exists.
No - Agency does not exist.