We are not yet VAT registered but hope to need to be soon...
Our app enables a person who has received service (say, at the hairdresser, or at a hotel) to elect to give a tip without using cash, by using our app. We act as agent, and we charge a small commission on top of the tip amount - this is our revenue. Payment is made by Apple Pay / credit card etc on the user's phone, and the funds are automatically transferred to the recipient's bank account - we currently offer service in the UK and the US but for now let's assume we are talking about a UK recipient. Our app generates a payment receipt which is sent to the person tipping, on which our commission is split out - however at this point the payment has been made and received.
We will need to engage a VAT specialist I would think to determine if our commission is a standard rate VAT supply, rather than zero rated or exempt, but let's assume it is standard rate.
If so, I believe that implies that we would need to issue the person tipping with a VAT invoice marked as paid in respect of just our commission (likely to be <£1). If so, that would be very user-unfriendly in terms of having to send a separate receipt email for the receipt for whole tip + our commission and then a separate VAT invoice email for just the commission component.
Perhaps the solution would be to convert what is currently a receipt to also state that it is an invoice and the tip would be zero-rated and the commission standard rated. I am loathe even to do this but if we must, we must.
Any guidance greatly appreciated - we will soon be engaging a VAT professional but as so often with these things, I will be in a better position to frame / scope the engagement if I have a feel for where the answer is likely to lie.
Many thanks, Adrian