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HMRC internal manual

VAT Taxable Person Manual

Agency and disbursements: how agents should account for VAT - Section 47 of the VAT Act 1994: Section 47(2A)

47(2A) Where, in the case of any supply of goods to which subsection (1) above does not apply, goods are supplied through an agent who acts in his own name, the supply shall be treated both as a supply to the agent and as a supply by the agent.

This provision, which came into force on 1 June 1995, implements Article14(2)(c) of Directive 2006/112 and applies to goods supplied within the UK through an agent.

An agent who acts in his own name in arranging supplies of goods on his principal’s behalf is regarded as both receiving and making that supply. In commercial terms, the contract for the goods remains between the principal and the third party involved; but, for VAT purposes only, the agent is brought into the supply chain. The agent is then liable to account for VAT on the supply of the goods as well as on the supply of his own services to his principal. If the agent chooses not to act in his own name but stands back from the transaction, the only supply he makes will be of his services as an agent to his principal.

Acting in own name

If an agent issues his own invoice, albeit on behalf of his principal, he will be regarded as acting in his own name. The issue of an invoice will be the determining factor in most cases; but if invoices are not issued or appropriate, the role which the agent plays in effecting the transaction must be taken into account.

If the agent plays a minor role in the transaction and does little more than introduce his principal to potential customers or suppliers, we would accept that he is not acting in his own name. This may also be the case even if he receives or delivers the goods or makes or receives payment on behalf of the principal, provided the contractual and invoicing arrangements are between the principal and the third party. If however, the agent enters into a contract with a third party on the principal’s behalf, particularly when the principal remains unnamed or undisclosed, then for the purposes of section 47(2A) he will be considered to be acting in his own name.

Accounting arrangements

The supplies to the agent and by the agent under section 47(2A) are treated as taking place simultaneously: they have the same tax point. The agent must therefore account for VAT at the same time as he deducts VAT on the supply to him. This principle was confirmed in Metropolitan Borough of Wirral, QB [1995] STC 597 (see VTAXPER37900). Although this case concerned supplies of services through an agent under section 32(4) of the VAT Act 1983, we believe the principle applies equally to supplies under section 47(2A).

Since the nature and value of the supply of goods is not altered by section 47(2A), the amount of input tax recovered will be equal to the output tax accounted for on the onward supply, unless the direction of supply means that the liability changes.

In addition to receiving and making the supply of the goods, an agent falling within the scope of section 47(2A) is still making a supply of his own services to his principal, and remains liable to account for tax on this also. However, agents arranging supplies of goods eligible for a margin scheme may account for the VAT on their agency services as part of the margin scheme. Auctioneers may also be able to use similar accounting arrangements under the Auctioneers Scheme. Further details on the operation of these schemes can be found in V1-23 VAT Schemes.