e-commerce VAT, similar to drop shipping but all UK based.

[Anonymous]

Hi

Here’s hoping you can help, I have asked HMRC and read the appropriate sections but unfortunately I don’t understand the accountancy language, I have asked a couple of accountants and read through these forums but to no avail.

We own a website which will sell items made by many different sellers all UK based, customer and seller.

The end customer will 99% of the time not be VAT registered.

We will take full payment for the items ordered and pass the orders on to the relevant sellers who will dispatch directly to the customer. For this service we will charge the seller a commission typically around 25%

Each month each seller will invoice us for their sales minus the commission.

We will not be buying any stock.

In order for this to work we need to be paying VAT on our commission not on the full sale price of the product, I believe this is referred to as acting as an agent.

Would the above method of trading allow us to only pay VAT on our commissions. If not in waht way would we have to change the proposed method of trading.

If we are only liable to pay VAT on our commission, presumably our turnover is calculated from the commissions not from the total sales on the website.

Any help would be greatly appreciated

Kind regards

[Marie Stein]

Hi Lawlrec

Thanks to your query. I know that agency/commissions is a messy area of VAT and it’s something that I think a lot of people get confused about.

The reason is simply because of the use of the terminology. The word “agent” is sometimes used to describe a vendor whose profit is calculated by reference to sales made, so that their income is made up entirely of commission, but never actually take title to the goods or services involved. But often, when you look at the contract, it’s not a true agency situation but simply that the original supplier of the goods may wish to retain title to the goods until they are eventually sold or sales are made to order. In that situation, the original vendor may refer to the profit as “commission” because the intermediate vendor (i.e.you) only gets their share of the sales proceeds as and when they sell to a third party.

And the issue is sometimes even more complicated because in a lot of service-based industries, such as employment agencies, the “agent” is clearly acting as a principal.

In most cases, it comes down to the issue of whether or not you take ownership to the goods at any point in the transaction, or how you treat them for accounts or legal purposes. For example, if the customer has a problem with the goods, who is legally responsible for sorting out the problem? These are the sorts of issues that you need to consider when trying to establish whether or not your income for VAT purposes should be the value of the goods sold or the value of your commission. The VAT liability of the sales of the goods or the commission would depend on the place of supply of those goods/services themselves and would have to be considered in their own account.

I’m sorry I can’t be of more help, but I think that any VAT adviser would tell you that there’s no one defining factor that can establish whether or not you’re selling the goods as agent or principle for VAT purposes. I’d be happy to help through my consulting services and I do offer lower rates for small businesses, so please feel free to drop me an e-mail or call me to have an initial discussion (free and no obligation!) if that would help.

Finally, I should admit that I don’t speak the “accounting language” myself! As a VAT consultant, my second language is, unfortunately, “VAT speak” and there are very few people in the world who like to admit to this.
Marie

[Author]

Posts