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HMRC internal manual

VAT Taxable Person Manual

HM Revenue & Customs
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Issues to consider: agency and disbursements: how agents should account for VAT - EC legislation

EC VAT legislation touches upon agency in both Article 14 and Article 28 of Directive 2006/112, but accords no special treatment to supplies made by agents.

  • Article 14 of Directive 2006/112 (formerly Article 5 of the Sixth Directive) deals with supplies of goods and states:

14(1) “Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.

14(2) In addition to the transaction referred to in paragraph 1, each of the following shall be regarded as a supply of goods:

(c) the transfer of goods pursuant to a contract under which commission is payable on purchase or sale. 
  • Article 28 of Directive 2006/112 (formerly Article 6(4) of the Sixth Directive) deals with supplies of services and states:

Where a taxable person acting in his own name but on behalf of another takes part in a supply of services, he shall be considered to have received and supplied those services himself.

Under Article 373 of Directive 2006/112 (formerly Article 28(3)(e) of the Sixth VAT Directive), member-states were permitted to derogate from both Article 14(2)(c) and Article 28. The UK originally exercised its right to derogate from both provisions, but gave up its derogation from Article 14(2)(c) in respect of goods supplied through agents as part of the implementation of the Seventh VAT Directive. From 1 June 1995, therefore, where goods are supplied through an agent acting in his own name, the supply is treated as both to the agent and by the agent for VAT purposes - see VTAXPER36820. Despite the words a contract under which commission is payable in Article 14(2)(c), we believe that the provision should be interpreted in the same terms as Article 28.

An agent involved in arranging a supply of goods still has the choice of standing back from the transaction, however, and leaving his principal to deal directly with the third party. In that case, the only supply made by the agent will be the provision of his own services to the principal.

Our derogation from Article 28 in respect of services supplied through an agent still exists. Although agents are not required to treat supplies of services they arrange as made to and by them, they have the option of doing so in certain circumstances under the terms of section 47 of the VAT Act 1994. If you are satisfied therefore that your trader is acting as an agent in respect of a supply of services and the conditions set out in VTAXPER36900 are met, he may choose between two courses.

  • He may use the invoicing provision of section 47(3) of VAT Act 1994 and treat the supply as to and by him.
  • Alternatively, he may stand aloof from the transaction, simply allowing it to pass through his hands and informing his principal of the value to be invoiced or paid. Under this procedure, the ‘disbursement procedure’, which is explained at VTAXPER38000, input and output tax remain the sole responsibility of supplier and customer, with the agent charging VAT on the value of his own services.