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HMRC internal manual

VAT Taxable Person Manual

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HM Revenue & Customs
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Particular trades: school photographers

The problem

Many photographers act as official photographer for schools, playgroups, and similar institutions and periodically take photographs of the children. When these photographs are sold to the parents, it can be difficult to determine who has made that sale. There are two possible scenarios.

  • The photographer sells the photographs to the school, who then sells them on to the parents The difference between the price paid by the parents and the price paid by the school is a mark-up made by the school on its own goods.
  • The photographer sells the photographs direct to the parents The school acts as a subcontractor, supplying the photographer with a package comprising facilities, services, and access to an open market. The difference between the price paid by the parents and the price paid by the school is consideration for the services of the school as subcontractor to the photographer.

Sometimes a photographer may sell group photographs to the school, but sell individual photographs directly to parents, and vice versa.

How to decide

To distinguish between the two scenarios above, you need to consider three questions.

  • Who has title to the photographs? This is best demonstrated by what happens when things go wrong. You need to ascertain who has to remedy faulty goods, and who suffers financially if a parent does not pay. If the school bears these responsibilities, this indicates that it has bought the photographs from the photographer and then made an onward sale. If the photographer bears these responsibilities, this indicates that title to the photographs remains with the photographer, who has made a sale direct to the parents.
  • Who sets the prices? Some photographers prepare packages of photographs and label these at a pre-arranged price. Here the photographer is setting the price, which suggests a sale direct from photographer to parent. Other photographers agree a fee to be paid to them by the school, but let the school determine the final selling price. Here we view the school as buying the photographs from the photographer and then making an onward sale.
  • What is the school’s fee based upon? If the school is selling photographs to the parents, it pays a set fee to the photographer, and the amount it earns is determined only by how much the parents will pay. If the photographer reduces the price which the school pays to him if the school undertakes extra duties - for example, the collection and sorting of money - this suggests that the photographs are sold by the photographer direct to the parents, with the school in turn providing a package of services to the photographer.

If you reach the conclusion that the photographer has sold the photographs direct to the parents, you may quote the decision in Flashlight Photography (LON/91/270Z), or H Tempest Ltd (LON/85/382), in support of your decision. You may find that traders and tax advisers quote the earlier High Court decision in Peter Lewis Alfred Paget ([1989] STC 773), in support of the view that the school has purchased photographs from the photographer and sold them on to parents. However, we argued these cases on the grounds that the school was acting as an agent for the photographer. We no longer pursue this line of argument, and thus if traders quote this decision, you should simply inform them that we believe the decisions in Flashlight or H Tempest now apply.

Accounting consequences

The accounting consequences depend upon who has sold the photographs to parents.

  1. The photographer has sold the photographs direct to the parents In this situation, the photographer must declare output tax on the full value of the sale. The lesser sum retained by the school is consideration for its supply of services to the photographer. Schools may be registered by virtue of their other business activities, and thus will be obliged to declare output tax under their own VAT numbers. The majority, however, will probably not be registered, and thus will not declare output tax unless the value of commission on school photographs pushes them above the registration limits. Where output tax is charged by the school, it will normally be deductible as input tax by the photographer.
  2. The school has purchased the photographs from the photographer and made an onward sale to parents In this situation the revenue must be protected by ensuring that output tax is declared on the full price paid by parents for their photographs. Thus, where the school is registered, it must declare output tax on the full sale value, and is entitled to deduct input tax in regard to the output tax charged to it by the photographer. But where the school is not registered, (and the total value of sales by the photographer to the school and/or other registered persons for re-sale exceeds £50,000 per annum), a notice of direction (NOD) must be issued under Schedule 6, paragraph 2 of the VAT Act 1994, requiring the photographer to account for VAT on the retail selling price: see sections 5.5 and 5.6 ofV1-12 VAT Valuation.

Thus by one means or another, output tax should be declared on the full sale value of the photographs. But it is nevertheless vital that you establish the correct position; not least because a notice of direction may only be issued from a current date, whereas a decision that the photographer has supplied the photographs directly to the parents may enable us to assess for arrears of tax.

Further information

Further information on the accounting arrangements for local education authorities and schools in connection with school photographers can be found in section 7.19 ofV1-12.