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do I have a requirement to invoice?

Our phone app facilitates cashless tipping, as an agent we take a tiny commission - must we invoice?

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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


Replies (4)

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By WhichTyler
29th Oct 2019 16:16

Why not charge the recipient rather than the payer, as they are the ones benefitting? Then they are your customer (not the tipper) and you can invoice them with the payment you make to them...

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Replying to WhichTyler:
By Adrian Harris
30th Oct 2019 06:59

thank you WhichTyler - unfortunately that is not an option. We have to deduct disbursements from the recipient's tip which if combined with the commission we charged the payer would cause sufficiently large deductions in the net amount being received by the recipient as to inhibit the adoption of our app.

Thanks (1)
By Les Howard
29th Oct 2019 16:35

Here are some ideas:

1. will your service be standard rated, or an exempt financial transaction?
2. can I or should I back-dated my registration for VAT?
3. what is the minimum paperwork you can provide (electronically of course) & does it need to be a 'VAT invoice'?
4. should I use self-billing?

Thanks (1)
Replying to leshoward:
By Adrian Harris
30th Oct 2019 07:11

thank you Les

1. I need to seek specialist advice on that. The tip itself I understand is outside the scope of VAT. However as to our commission, some prior research I did suggests that our commission would be exempt if we were considered the payment processor, and not if not. We use a third party payment processing software platform behind the scenes to effect the payments, and though the process is fully controlled and executed by our app, it is possible we would not be considered a payment processor and therefore our commission may be standard-rated within the scope of VAT

2. backdating our registration for VAT would not have a material effect at the moment as we are just in the process of launching 'organically' so the amounts of money currently involved are tiny!

3. yes that is the question I am seeking to answer

4. In practical terms we cannot expect the recipient of the tip to manually issue an invoice to the payer, although technically we could do it at an automated level. Tip recipients though will not be VAT registered.

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