Do I have to register for VAT?

Does my business have to register for VAT.

Didn't find your answer?

I'm hoping somebody can advise me if possible. 
 

I have a client that runs an emporium (essentially a second hand shop) where stallholders rent space off of him in the shop to sell their goods. Some sell clothes, some vinyls, mostly odds and sods. 

The shop is run by a self employed individual, trading as such. There is no Limited company involved.

The shop makes the sales on behalf of the stallholders, and once a month he will take the total of the sale for each holder, deduct his 10% commission and pay the balance to the holders. 
 

Firstly, can he do this? Does he have to be FCA regulated to officially hold money on behalf of other people? 
 

My main question, since collectively the stalls take around £16K per month, the shop itself is well over the yearly VAT threshold in the UK. Must the shop register for VAT? Technically the sales aren't the shop's, they belong to the individual stallholders and they receive 90% of the sales which they declare on their own self employed tax returns. 
 

With just the stallholders rent and the commission, my friend himself is well under the VAT threshold, taking around £60K per annum. 
 

any advise anybody can give us greatly appreciated. 

Replies (5)

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By David Ex
04th Oct 2023 20:58

JLBW wrote:

Does my business have to register for VAT.

I have a client …

The shop is run by a self employed individual,

any advise anybody can give us greatly appreciated. 

How many people are involved?!

You need to take the relevant legal agreements governing the arrangements to an accountant and take some tailored professional advice.

Thanks (1)
Trevor Steel
By Trevor Steel
04th Oct 2023 21:04

It depends on whether the shop is regarded as the principal in the sales to customers, or acting as the agent of the stallholders. You mention that the sales "technically" aren't the shop's - i.e. that the shop is acting as agent - but I would suggest following HMRC's guidance starting here: https://www.gov.uk/hmrc-internal-manuals/vat-taxable-person/vtaxper36580 to ensure they agree.

The fact that stallholders show the sales on their tax returns does not determine the position - as this would still be the case if the stallholders were regarded as making their sales to the shop, and the shop making onward supplies (as principal) to the public. Also bear in mind that if the shop is agent, the stallholders' "income" would be 100% of the sales, and the 10% commission deducted is "expenditure".

If the guidance agrees that the shop is acting as agent, you only need to consider the stallholders' rent and the commission. Although land rents are often exempt from VAT, in this case it would be regarded as part payment for the shop's services as agent - as the arrangement goes well beyond any licence to occupy land. So both the rent and commission, but not the other 90% of sales, would count towards the £85k threshold.

But if the shop is regarded as principal in the sales to the customers, both the 100% of sales and the stallholders' rents would be taxable turnover.

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RLI
By lionofludesch
05th Oct 2023 09:21

Classic Who Is Supplying What To Whom?

So what does the contract say?

If the customer had a problem with the goods, who would he sue? Sounds like the emporium to me.

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VAT
By Jason Croke
05th Oct 2023 09:26

OP.

You start by noting you have "a client", then later you refer to them as "your friend" and your post asks "do I have to register for VAT", so I take that to mean you are not an Accountant and you are asking this question as a business owner/the shop owner.

My only comment would be that if none of this arrangement is properly documented, with signed agreements and contracts, HMRC will most likely assume all of the income belongs to you/your friend/your client.

Whether there is an agent or principal situation depends on the evidence, the fact the stallholders declare their own income is irrelevant to the legal position of the shop owner himself (and how does the shop owner know the stallholders declare tax, for all anyone knows the stallholders are pocketing the cash and not declaring it to anyone).

Protect your own/clients position by ensuring no ambiguity in terms of the relationship between shop owner and stallholders.

Also, how robust is the EPOS/till? HMRC would potentially want to see that sales are correctly recorded to the correct stallholder, what systems are there to ensure that all sales are recorded and none get forgotten or slip through the net, etc.

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Replying to Jason Croke:
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By JLBW
05th Oct 2023 18:44

Thanks for you reply. I am an accountant and the client in question is also a friend of mine (and was for many years before I became qualified).I worded the question as if it was me as it was a “if this was me in this scenario, would I have to register..”

In terms of the stallholders declaring their own sales; you are correct, they tell the shop owner that they are but they could well be pocketing the proceeds and not declaring it. This is why I am trying to determine whether the shop can act as an agent, so if any of these stallholders were caught out, the client is protected.

I have concluded that currently, he does not meet the criteria to be seen as an agent in HMRC’s eyes, and have advised him that to do so and essentially avoid the wrath of the powers at be, he must draw up written contracts with each stallholder and keep robust records of stock that is held by each stallholder so that sales can be matched up against inventory and allocated against the correct account.

Thank you to everybody for the advise. It is much appreciated.

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