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HMRC internal manual

VAT Taxable Person Manual

HM Revenue & Customs
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Agency and disbursements: how agents should account for VAT - Section 47 of the VAT Act 1994: Section 47(1)

47. Agents, etc

47(1) Where -

(a) goods are acquired from another member State by a person who is not a taxable person and a taxable person acts in relation to the acquisition, and then supplies as agent for the person by whom they are so acquired; or

(b) goods are imported from a place outside the member States by a taxable person who supplies them as agent for a person who is not a taxable person,

then, if the taxable person acts in relation to the supply in his own name, the goods shall be treated for the purposes of this Act as acquired and supplied or, as the case may be, imported and supplied by the taxable person as principal.

This provision can avoid the need for overseas traders to register for UK VAT when they send goods to the UK for disposal on their behalf by an agent. If the agent acts in his own name (that is, if he issues an invoice for the goods in his own name), he is treated as a principal in the import or acquisition and supply of the overseas goods. This provision was amended and made mandatory from 1 June 1995 as part of the general changes in the treatment of goods supplied through agents. Before that date, the provision only applied if the agent wished to be treated as the principal.

As a principal under section 47(1), the agent must account for VAT when he sells the goods on to the UK customer in his own name, but can recover as input tax, the VAT paid at importation or acquisition, subject to the normal rules.

If the UK agent chooses not to act in his own name but stands back from the transaction between his principal and the customer in the UK, the overseas principal remains the importer or acquirer of the goods and makes the onward supply in the UK. The overseas business is then liable to register for VAT here if the value of its supplies and acquisitions exceeds the registration threshold.

If the agent is treated as a principal under section 47(1), any VAT charged on its own services is not recoverable by the overseas business. Some agents may therefore wish to disguise their commission as a mark-up on the goods and thus pass this charge on to the UK third party instead. If an agent really has decided to become a principal, this is legitimate. But you should check, by examination of the agreement, that the reality of the situation has actually changed: does the agent now own the goods which previously would have belonged to his overseas principal?