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CJEU rules OnlyFans liable for £11m VAT charge | accountingweb
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OnlyFans in awkward position over £11m VAT bill

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Web portal OnlyFans has been hit with a VAT liability in a case that shows the online world and post-Brexit tax are not ideal bedfellows.

21st Mar 2023
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The digital age we live in is reflected in the case involving the social media platform OnlyFans operated by Fenix International Limited (Fenix). HMRC assessed Fenix for VAT and the first tier tribunal (FTT), unsure about whether the EU provisions concerning electronic communications went beyond what was allowed within EU law, sought a preliminary ruling from the Court of Justice of the European Union (CJEU). Following on from the earlier opinion of the Advocate-General, the CJEU found that the rules in place were compatible with EU implementing powers.

The OnlyFans platform enables the public to access adult-specific social media content, such as videos, photos or messages placed by creators for a fee, from anywhere in the world. Fenix charges creators 20% of the fee that is paid by users, or “fans” as they are known, in order to access content. OnlyFans essentially acts as an agent for creators, providing the necessary online access, financial and administrative services that allows fans to access its marketplace and purchase material from creators. 

EU legislation

Article 28 of the VAT Directive 2006/112/EC later amended, states that where a taxable person, acting in their own name but on behalf of another person, takes part in a supply of services they shall be deemed to have received and supplied those services themselves. To further clarify matters Article 9a(1) of Implementing Regulation 282/2011 from 1 January 2015 required that where electronically supplied services are provided through a telecommunications network, an interface or a portal such as a marketplace for applications, a taxable person taking part in that supply shall be presumed to be acting in their own name and on behalf of the provider of those services. That is unless the provider is explicitly indicated as the supplier by that taxable person and that is reflected in the contractual arrangements between the parties.

HMRC interpreted the VAT directive as requiring Fenix to account for VAT on all of the income received from users and not just the 20% charged to creators for its fee commission, making it liable for £11m.

FTT referral

The FTT raised questions as to the validity of Article 9a(1) and whether it went too far in implementing Article 28, in particular the presumption in Article 9a(1) that a provider such as OnlyFans is acting in their own name could lead to a radical change in the treatment of services falling within Article 28 leaving out the economic and commercial position of the taxable person and their contractual autonomy. In reality, it is almost impossible for any outcome other than the platform host having to accept VAT liability for the total fees paid by fans.

Identifying the supplier

So did Article 9a(1) comply with the general aim of Article 28? Yes it did. The CJEU outlined Article 28 which sets out the treatment of taxable transactions where the intermediary – in this case Fenix through its OnlyFans portal – acts as an intermediary either in its name or on behalf of another and therefore is presumed to be the supplier. The aim of the implementing regulation is to ensure there is uniform application across member states and to identify who the actual supplier is with a view to avoiding double taxation in member states and give legal certainty. In doing so Article 9a(1) identified who the supplier is when those services are supplied through a website, portal or platform and complied with the general aims of Article 28.

And is there a need for Article 9a(1)? The answer was again yes, following changes in the VAT Directive from 1 January 2015 there was a need to consider how those changes took effect, to establish legal certainty and avoid double taxation or non-taxation in member states given the complexities involving telecommunication and electronic services.

Did it go too far?

Fenix argued that the EU legislature never intended Article 28 to be subject to further additions as in Article 9a(1), which in turn went too far. The CJEU concluded that it merely clarified the terms of Article 28. Regarding the presumption in the first sub-paragraph of Article 9a(1) that an agent becomes the supplier without reference to the economic and commercial reality, again the CJEU concluded this merely specified the cases this might apply to. It places the activities of the taxable person in the context of the supplies of electronic services via a portal, or market interface. The second sub-paragraph did no more than set out the elements including detail about invoicing that constituted the supply and did not add or amend the framework laid down in Article 28. Finally the third sub-paragraph again reflects the aim of Article 28 that a taxable person as in Fenix is always to be presumed as acting in their own name but on behalf of in this instance the creators who supply the materials for fans to access. 

The way forward

This is a highly complex area of VAT and anyone involved in creative activities or hosting such materials on a website or platform should seek advice as to how to proceed. Anyone who sees themselves as a creator of content and engages with a third-party platform such as OnlyFans might well have a liability to register for VAT if their income exceeds the VAT threshold. The UK has now left the EU but many of the regulations that applied here are still in place within UK VAT legislation. 

HMRC has published VAT rules for supplies of digital services to customers which goes someway to explaining guidance. However, given that the fast-moving digital world and VAT post-Brexit appear not to be ideal bedfellows the chances of further collisions in the UK courts seem likely.

Replies (13)

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stonks
By WinterDragon
21st Mar 2023 14:24

Looks like Fenix have been caught with their trousers down - perhaps they are onto something and maybe the VAT rules should be stripped down.

Thanks (5)
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By Paul Crowley
21st Mar 2023 17:02

I am sure fans of this type of material can easily afford the VAT should should have been paid
Given that the content creators are highly unlikely to be compliant, far better to put the VAT on the facilitator

Thanks (1)
Replying to Paul Crowley:
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By Crouchy
21st Mar 2023 18:51

I wouldnt agree with this, we deal with quite a number of clients who work in this area and through only fans

all are very conscientious when it comes to their tax and VAT and want to make sure that they are doing things right.

Thanks (3)
Replying to Crouchy:
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By Justin Bryant
22nd Mar 2023 12:17

That's called selection bias i.e. you are (likely by definition) considering an unrepresentative sample.

Thanks (3)
Replying to Paul Crowley:
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By unclejoe
22nd Mar 2023 11:24

It seems to me this is a complete mess. I am not sure I agree that creators are likely to be non-compliant. I am not familiar with Onlyfans, but I am involved with a music band that sell digital music through an agent and I imagine that is a similar sort of supply. The agent charges a fee and and VAT for his service element. We are VAT registered and account VAT on sales. If our agent has a similar back VAT assessment on sales he made on our behalf, will we be able to claim back all the VAT we paid??

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By Winnie Wiggleroom
22nd Mar 2023 08:52

James- struggling to see how this relates to Brexit given that "many of the regulations that applied here are still in place within UK VAT legislation"

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Replying to Winnie Wiggleroom:
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By listerramjet
22nd Mar 2023 11:32

just another example of how tardy our government is. Or perhaps demonstrating their intent on rejoining.

Thanks (0)
7om
By Tom 7000
22nd Mar 2023 09:57

£60m income
Our share 12m
Our vat 2m
we have 10m left... woo hoo not bad....
Sorry son we want it all and another £1m

Erm.. but I spent it

Is there a company Doctor in the room?

CVA 10p in the £1 and fees up 20% in future?

Thanks (2)
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By listerramjet
22nd Mar 2023 11:31

what is more likely to happen is that such providers will move their business elsewhere, thus depriving the Treasury of the whole golden goose!

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By Les Smith
22nd Mar 2023 11:34

This is a good result.

The site operator pays VAT on 100% of income, it no longer matters whether or
nor the "creators" ate VAT registered, if they are they will have inputs covering the liability.
In the meantime a healthy chunk of revenue for the exchequer

Thanks (2)
Replying to Les Smith:
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By moneymanager
23rd Mar 2023 00:13

EU levies were responsible for London losing a large chunk of the high end art auction market to New York.

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By Ian McTernan CTA
22nd Mar 2023 13:39

Pretty sure some VAT whizz will redesign the billing system pretty fast to ensure only the commission is taxable....

Thanks (1)
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By Williamson
10th Mar 2024 18:22

OnlyFans charge VAT upon "genuinely freely given" tips/gratuities. Inland Revenue E24, states these tips are "beyond the scope of VAT".
Either the Revenue or OnlyFans appear to be "going too far" in yhis respect.

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