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HMRC internal manual

VAT Taxable Person Manual

Agency and disbursements: how to distinguish agency: the package of information

Before attempting to decide if an agent/principal relationship exists, you must gather together all relevant information, so that you can take a balanced and well-informed view. This should include information on the agreement, correspondence, normal commercial documentation, and practical arrangements.

  • Agreement In many cases there will be a written contract or agreement of some sort which governs the conduct of the two parties; and both parties, agent and principal, will normally hold a copy. If the trader claims that no written agreement exists, it may be possible to check with the other party. Be extremely wary of accepting that no written agreements exist. In the exceptional circumstances where there are no written agreements, ask the trader to give precise written details of what was agreed orally between the two parties; confirm your understanding of the situation by writing to the trader; and check these details with the other party wherever possible. Failing this, record verbatim the trader’s comments about the spoken agreement (understanding?), as best you can; and where possible confirm with the other party and the trader in correspondence that their understanding coincides. Always remember that in agency cases, the burden of proof lies with the trader and not with HMRC.
  • Correspondence This is of particular value where no formal written agreement exists, and may include letters of appointment or acceptance, or the minutes of meetings between the parties.
  • Normal commercial documentation for example, invoices, orders, statements and promotional and advertising material, and the business accounts of both parties - particularly the profit and loss account.
  • Practical arrangements Interview the trader and obtain as many details as possible of the business operation - for example, who receives payment? - who is responsible for bad debts? - to whom would an aggrieved customer complain? - and who would legal redress be against? Also, if possible, seek confirmation or further information from the other parties to the agency agreement.
  • In certain trades which have often been the focus of agent/principal problems, we have provided aide-memoires, which list all the relevant information for that trade. You may wish at this stage to check whether such an aide-memoire is available for your trade in VTAXPER60000.