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Payment of finder's fees to 3rd parties Tax Deductable for Sole Traders?

Payment of finder's fees to 3rd parties Tax...

As a Marketing Consultant who is a sole trader I sometimes get my contracts through a middle man.

This middle man looks for and introduces me to prospective clients.

As a compensation for the service of finding / introducing me to a client, I need to pay this middle man a finder's fee/Commission.

This fee is roughly 15% of the value of the contract that I obtain with the client.

As this is a purely business-related cost, I was wondering if I can deduct these cost as a business expense?

Thanks in advance for helping me find an answer to tis question.



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29th Nov 2012 14:17


Provided that the expense is wholly for business purposes (which is appears to be) you can deduct it as a business expense.

You should get an invoice from the finder for the commission, and any evidence that you can gather that he is in business in his own right would be helpful should HMRC decide to look into the commission payments.

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By 2Brick
to Euan MacLennan
12th Dec 2012 09:28

VAT on Finders fee with finder outside of the EU

Thanks for your answer!

Yes, the expense is wholly for business purposes and I will therefore deduct it is a business expense.

I have one last question though:

The client that I have gained and the referrer are both located outside of the UK

The person who has referred me to my client is a Dubai resident.

I just want to pay him the finder's fee.

Is it advisable to pay the referrer through his personal or through his business account and will I have to pay VAT over this payment?

I am a Sole Trader and am not VAT-registered.

I would just like to pay the finder's fee.

Thanks a lot for shining some light!


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12th Dec 2012 10:00

VAT on Finders fee

As I said in my first reply, you will need to get an invoice from the finder for the commission payment. This is quite important because if you do not you may have some difficulty persuading HMRC to accept that this is a bona fide business expense - especially as it is to a supplier outside of the EU.

Once you have the invoice, you simply pay it. Now assuming that your finder has a very limited connection to the UK (so not operating a company/business in the UK which could make things messy from a VAT point of view) then it is unlikely that he will be registered for UK VAT and so you won't find any VAT on the invoice, so no VAT to pay.

I would recommend paying the referer though his business account as this adds ammunition to your claim that this is a bona fide business expense.

In the future, when you come to invoice your new client you will need to look at whether the fees you charge take you over the VAT registration threshold and also who you are invoicing. The transaction is likely to be outside the scope of VAT, but I suggest that you get in touch with a suitable qualified accountant or tax adviser who should be able to give you more specific advice.

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By 2Brick
12th Dec 2012 10:27

Thanks CCaspel,

so just an invoice from the referrer will suffice then...

A contract between his company and me is not needed then? Or is this something that is recommended as well to make sure I do not get in trouble with the tax man?





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13th Dec 2012 10:40

Finders fees

Just an invoice should suffice, but if HMRC don't believe it then you will have to show that it is real and not a sham.

I am not sure whether a contract would help or not - sometimes having something too detailed can cause more problems. I suggest just get a good invoice for the finders fee (with bank details) and pay that invoice in one go (if possible) to the foreign bank account so that should HMRC enquire you can show that you have a bona fide invoice and the money has left your account paying the invoice.

That should be enough.

Thanks (1)
By 2Brick
13th Dec 2012 12:40


OK, it is all legit and a proper invoice with company and bank details is no problem at all.

THANKS for your advice.

As this is all relatively new for me, I just wanted to make sure that I follow the right procedure.

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