Affiliate Marketing VAT

What income, if any, is VATable?

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Hi,

Apologies if this seems a silly question, but I'm finding it impossible to get answers elsewhere, HMRC seem especially unhelpful.

I'm setting up an affiliate marketing platform (UK-based, with only UK businesses & residents at this time) where businesses pay commission-only, so no sign up/posting fee (which I know would be VATable), my affiliate marketers get paid the set commission minus our management fee % deduction. Think 'TopCashBack' but instead of "you" getting the money from your own purchase, the affiliate marketer gets it. I'm assuming I don't charge VAT (once over threshold) on the total commission paid, as this would be more than the fee my business will be keeping, but I'm also not sure who it'd be classed as that I'm charging this fee to, in my mind, it is to the affiliate marketer as it's coming off their earnings, although the money is coming directly into me from the advertiser business to redistribute to the affiliate marketers.

Any help is much appreciated! Thank you

Replies (6)

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By WhichTyler
06th Apr 2024 13:03

I'm not sure if I completely understand your model, but as usual, it will depend on (a) the details of the (numerous) contracts involved and (b) the perception of the final customer.

Needs professional advice (legal and VAT)...

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By WhichTyler
06th Apr 2024 13:06

I'm not sure if I completely understand your model, but as usual, it will depend on (a) the details of the (numerous) contracts involved and (b) the perception of the final customer.

Needs professional advice (legal and VAT)...

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Replying to WhichTyler:
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By David Ex
06th Apr 2024 14:15

WhichTyler wrote:

I'm not sure if I completely understand your model, but as usual, it will depend on (a) the details of the (numerous) contracts involved and (b) the perception of the final customer.

Needs professional advice (legal and VAT)...

Sound advice - both times.

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Replying to David Ex:
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By FactChecker
06th Apr 2024 17:54

Quite.

OP: take your "I'm also not sure who it'd be classed as that I'm charging this fee to, in my mind, it is to the affiliate marketer as it's coming off their earnings, although the money is coming directly into me from the advertiser business to redistribute to the affiliate marketers" with you when you visit the professional adviser.

Also take copies of all the contracts involved anywhere in all the overlapping chains ... or if they don't exist, ask the adviser to create them for you.
It will always come back to WISWTW - for which contracts are the best evidence.

Thanks (3)
Replying to FactChecker:
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By Paul Crowley
06th Apr 2024 18:33

WISWTW
For the benefit of OP
Who is supplying what to whom

The basic VAT question.

Thanks (1)
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By hrbs.biz
06th Apr 2024 18:53

This looks like the standard affiliate network model i.e.
a. you charge advertising fee/commission to the advertiser (your customer).
b. you pay a proportion of the income to the affiliate/publisher (your supplier).

Bear in mind that the affiliate may be VAT registered and therefore would need to add VAT onto the share of commission you pay them.

If your customers are UK businesses, it may be beneficial for you to be VAT registered from the outset. VAT should be added onto the fee/commission you charge the customer and paid to HMRC after deducting the input VAT that you have been charged e.g. hosting, professional fees, affiliate commissions etc. As the VAT is added onto the commission charged, it is not a cost to you if you've negotiated contracts where your fee is net of VAT.

FactChecker's advice is spot-on. Make sure you have contracts for every aspect e.g. how is the sales commission/fee calculated, is it before or after delivery costs etc. Similarly with the commissions paid to your affiliates. I suggest that you review the affiliate/publisher t&cs of other networks which are usually available on their websites.

The administration could be substantial. You'll need to have bullet-proof tracking systems to prove the sales transactions to your customers and also to track the commissions payable to your affiliates.

I suggest that you discuss your business model with your accountant. They should be able to explain the process in greater detail than my simple a&b above. They will be able to advise upon VAT (e.g. self billing), cashflow management, tracking etc.

Commissions received from non-UK businesses and paid out to UK suppliers/affiliates will bring additional complications that your accountant can help you with.

Good luck.

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