I have found a number of discussion threads on commision for referral partners but none that cover the situation we are trying to answer...
We have a referral partner who is based in the UK and VAT registered and we are also based in the UK and VAT registered. The referral partner made a referral to us for a potential new client in Australia and they subsequently purchased our software product. We did not charge VAT on the invoice for the Australian company as they are overseas, but the UK referral company has charged VAT on their commision. Is this correct or should the commission be VAT exempt?
Thanks for you time in reading this and I really appreciate any advice you can give.
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Place of supply is determining factor if and what VAT is chargeable and general rule is
You supply services to a:
business customer then the place of supply is where the customer belongs
non-business customer the place of supply is where the supplier belongs
Except few exception to above rule; In your case service provider (referral) and receiver both are based in UK hence subject to UK VAT
So the referral partner simply gave us the name of a business contact in Australia and a simple introduction email and they had no further involvement. All of the selling process was done by ourselves and we eventually sold them our software as a new customer (B2B) so the place of supply is Australia as a result we charge no VAT. But as the Referral Partner is based in UK they have invoiced for their commission + VAT, it doesn't matter that the place of supply of the actual goods is Australia? Is this because the service provided from their end is the referral email?
You knew this before, referral parter wimply will give you contact and all selling process to be done by yourself!
there 2 transactions here - 1st referral referred you and is charging you for that and from VAT point of view, referral have to charge VAT on their fees because of place of supply rule!
2nd transaction your Australian client being outside EU is Zero rated transaction
Further you are VAT registered so this shouldn't hurt you anyway?
Indeed, this was more a case of clarifying the referral partners invoice day index correct. Thanks Link!