VAT with Commission

self employed consultant. unsure on what I charge VAT on

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Hi People,

I have hit the threshold and have applied for VAT registration.

I consult for a company and sell services to consumers (B2C) I am then paid a commision if I am successful in selling the services.

Currently I get paid 20% of the total sale ex Vat.

Example would be

I see a client and sell a service for £2400 (Inc vat) the client pays this directly to the company I consult for.

Currently I am paid shown below.

20% of £2000 ex vat = £400 I am paid.

If I am vat registered do I bill

20% of £2400 (Inc vat) = £480

Then the additional £80 is paid to HMRC?

Thanks for the help



Replies (6)

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By paul.benny
15th Feb 2024 10:51

Your workings are correct - although once your registration is active, you can also recover input tax suffered on business expenses.

If you've hit the VAT registration threshold, you can afford an accountant for questions like this and other matters you may not have considered (other professional bodies are available)

Thanks (2)
Replying to paul.benny:
By David Ex
15th Feb 2024 13:23

paul.benny wrote:

Your workings are correct ….

Probably so but presumably the terms of the agreement will need to be examined??

Thanks (1)
Replying to David Ex:
Trevor Steel
By Trevor Steel
15th Feb 2024 22:42

The contract is important. This will (or should!) make it clear whether the 20% commission is VAT-exclusive (so you invoice £400+£80VAT=£480) or VAT-inclusive (so you invoice £333.33+£66.67VAT=£400). Either way, the amount shown as VAT is paid over to HMRC on your VAT return. But, as others have said, you will have an entitlement to VAT recovery on related business expenditure - including (potentially) some pre-registration expenditure.

Thanks (0)
By Dougscott
15th Feb 2024 16:10

And you may be able to reclaim VAT on expenses incurred before your VAT registration date.

But if you are not an accountant yourself you would be advised to consult one.

Thanks (0)
By jcace
15th Feb 2024 19:32

When you are VAT registered you will charge £400 + VAT (from your example), which totals the £480 you correctly calculated.

Thanks (0)
Replying to jcace:
By Tax Dragon
16th Feb 2024 05:22

I think ^this nuance is potentially important - it's not 20% of (£2,400 including VAT), it's (20% of £2,000) plus VAT. There's not one VAT charge of £400 which gets split 80:20; there are two different VAT charges, one of £400 and one of £80. (The difference is immediately obvious and important for the commission-payer.)

Thanks (0)