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HMRC internal manual

VAT Time of supply

Tax points for specific categories of supplier: agents




The activities of agents can be complex and varied. It is important to remember that in all cases agents act both

  • in their own right in making a supply of their own services to their principal, and
  • on behalf of the principal in fulfilling their agency function.

This can be a significant factor when considering the tax point for supplies involving agents. Further guidance on the subject of agency can be found in the manual covering taxable persons.

Tax point for an agent’s own supply of services

Continuous supplies

Many agents act for their principal on an on-going basis, under an open-ended contract.For example a selling agent may be appointed to promote and solicit orders for the principal’s goods until either party terminates the arrangement. The consideration for the agent’s own supply of services to the principal might take the form of a flat rate periodic commission, or a commission based on a percentage of the value of orders taken. In either event, this normally represents the consideration for a continuous supply of services. The tax point is therefore covered by regulation 90 of the VAT Regulations1995 (see VATTOS2355) and is the earlier of the receipt of payment by the agent or the issue of a VAT invoice. For further information on continuous supplies of services see VATTOS9150.

Single supplies

Not all supplies by an agent can be treated as continuous. Some are single supplies although they may be undertaken over an extended period of time. This can be illustrated by considering the position of an estate agent. There is often considerable delay between the time at which the estate agent is first appointed by the seller of the property and eventual completion of the sale. Nevertheless, this still represents a single supply of services by the estate agent normally to the seller of the property. As a result the normal tax point rules apply. In particular, this means that there will be a basic tax point for the agent’s supply when the work for the principal is completed.

Receipt of payment of an agent’s commissions

In some circumstances agents deduct their commission from amounts they collect on behalf of their principal. This is frequently the case with selling agents, where the amounts collected from customers by the agent are remitted to the principal net of the agent’s own commission. Unless the agent issues an earlier VAT invoice, it is the receipt of the commission that is likely to create the tax point.

Determining when payment is received in these circumstances can therefore be extremely important for time of supply purposes. Pinpointing precisely when this occurs is not normally easy, and rarely coincides with the time that the agent physically receives payment from the principal’s customers. This is because the payment is initially received by the agent acting on behalf of the principal rather than in the agent’s own right.

Payment of the agent’s commission cannot be said to have been received simultaneously simply because the commission will subsequently be extracted by the agent from the amount received. This was confirmed by the decision of the Tribunal in the case of Waverley Housing Management Ltd (VTD 11765). Waverley managed property on behalf of an associated company. In order to reduce the VAT liability arising from inter-company transactions, it was decided that the companies would form a group registration for VAT purposes. In the meantime it was agreed that, whilst the management company would continue to collect and retain the rents on behalf of the associated company, it would suspend levying management charges until the group registration came into effect. As the management services represented continuous supplies of services, no further tax points arose until payment of the management charges resumed. The Tribunal decided that;

‘receipt of rent by authorised agents of a principal could not amount to payment of the agent’s fee.’

Receipt of payment by the agent, for the agent’s own supply, can only be said to occur when the agent becomes entitled, under the terms of the agency agreement, to extract the amount due from the money held on the principal’s behalf. It will not always be clear from the arrangements between them when this actually happens. In that case it will be necessary to agree with the agent when, based on the circumstances, payment can routinely be said to have been received.

Tax point for supplies subject to section 47(3) arrangements

Under section 47(3) of the VAT Act 1994, supplies made through agents acting in their own name may be treated as a supply to the agent and a supply by the agent. This is to permit the VAT invoicing requirements to be met in the case of supplies involving undisclosed agents. The tax point for the deemed supply by the agent is linked to the time of the underlying supply by the principal or the third party as confirmed by the High Court in Metropolitan Borough of Wirral, QB [1995] STC 597.Further guidance on this may be found in the manual covering taxable persons.

Payments received by a principal via an agent

An agent is the alter ego of the principal. This means that a payment received by an agent on behalf of the principal, is also received simultaneously by the principal. This has implications for time of supply purposes, in situations in which the payment creates a tax point for the principal. It is the time the payment is received by the agent that creates the tax point for the principal, rather than the time it is received from the agent.