Independent VAT Consultant
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VAT and trading online: Part 1 – Third parties

Neil Warren considers whether online marketplaces are underpaying VAT and why three-party online arrangements for online sellers can be so difficult to untangle.

14th Aug 2020
Independent VAT Consultant
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VAT and internet trading explained by Neil Warren, Part 1
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This is the first article of a four-part series about VAT and online marketplaces that can sell anything from hotel bookings, bespoke essays (as in the All Answers case) to pornography (Only Fans).

Three party problem

VAT has always been a tricky tax when there are three parties involved in a deal.

I can still remember back in the 1990s when I was an officer in Customs and Excise sitting at a meeting with the CEO of a major concert venue that had hosted a big show. Also at the meeting was the managing director of the promotion company that had organised everything.

“So which company declared output tax on the ticket sales?” I asked. They simultaneously pointed at each other! The reality was that nearly £250,000 of output tax had been overlooked by both parties and the contract was ambiguous as to which party was responsible for this ‘minor’ issue.

Online markets

Roll forward about thirty years and think of the online markets you deal with on a regular basis. Those sites often involve three parties, and you are one as the consumer. The other two parties are usually the website owner, and the business with expertise in supplying goods or services required, eg a hotel on a booking website.

How does VAT fit with this arrangement?


Student Steve needs an essay written for his history course at university. He has found an online provider that will arrange for an expert author to write a suitable essay for him. Steve pays the online provider a fee, and that provider pays the self-employed author two thirds of this fee. The online provider is registered for VAT but the author is not VAT registered. What is the VAT position for the online provider?

All Answers tribunal case

This example is deliberately similar to the facts of the All Answers Ltd case (TC6845), first heard at the FTT in 2018

The issue was whether All Answers Ltd was acting as agent or principal. Is output tax payable on 100% of the fee paid by the student, or only the one third commission retained by All Answers Ltd? The tribunal agreed with HMRC that the company acted as principal and the VAT assessment for over £900,000 was correct.

Upper tribunal

The taxpayer in All Answers Ltd appealed the FTT decision and the Upper Tribunal released its decision on 30 July 2020, supporting the earlier verdict. The thoughts of the UT can be summarised in the final two sentences of its report: “As we have noted, there were some flaws in the way the FTT approached the question of who made the supply. However, its overall conclusion that the work was supplied by the Appellant, and not by the Writers, was correct.”

Only Fans

I was recently alerted by an Any Answers debate to a major VAT issue being reported in the national newspapers about a website called Only Fans. This is a content subscription website, mainly linking to all manner of "creative" models (the creators).

It works as follows: subscribers will pay a monthly fee to Only Fans for access to content placed on the site by the creators, with the creators getting 80% of the fee and the website keeping 20%.

The Only Fans organisation is based in the UK and the company now accepts that output tax is due on 100% of the fees received, in the same way as Any Answers Ltd, and not just the 20% commission as it previously thought. The position has apparently been corrected from 1 July 2020, and arrears of VAT are presumably being dealt with for previous years.

The challenge

As advisers you need to consider the All Answers and Only Fans scenarios and ask whether there might be similar problems lurking in the set-up of your own online trading clients.

The idea of this series of articles was prompted by the difficulties I encountered dealing with a query from an accountant about computer software supplies being made by a client on another online marketplace based in America. I’ll share this story in my next article as there were four parties involved in that instance!  This adds another VAT challenge to the equation, namely the ‘place of supply’ rules and issues of business to business (B2B) as opposed to business to consumer (B2C) transactions.

In the later articles, I’ll consider internet trading in goods and also issues concerning HMRC.     

Replies (8)

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By David160
17th Aug 2020 11:25

Looking at websites such as Amazon and Ebay, who has to declare output VAT there? The traders appear to have control over the goods supplied, price, delivery etc. Does Amazon/Ebay merely provide the setting in which trade occurs, like a website provider or a shop inside a shop where rent is paid? I have heard rumours that the rules may be changed to make Amazon/Ebay responsible for declaring the output VAT in full for all trading done on their websites.

What do you think?

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Replying to David160:
By BryanS1958
17th Aug 2020 12:04

Amazon, etc aren't even willing to pay their fair share of tax on UK related profits, so what do you reckon the chances are that they would account for VAT?:-)

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By PatrickMorrello
17th Aug 2020 11:58

If my client is in the situation of running a website which promotes services supplied by others, how do they make sure that they are acting as agent? Does the agency arrangement need to be disclosed to anyone buying the services, or is it enough that the agency arrangement is clear from the contract between the website owner and the service supplier?

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By Alonicus
17th Aug 2020 12:02

Amazon and eBay are (generally) a much simpler case, at least in theory.

The third party seller is fully responsible for VAT on the goods they sell on the platform, under normal VAT rules. There is an issue of Chinese sellers evading VAT, but that's more a compliance issue than a rules-based one.

The marketplace charges the seller fees for the service they provide, which is that of selling on their platform. Those fees are subject to VAT; the main difference between eBay and Amazon being that eBay UK charges UK VAT, while Amazon is (notionally !) domiciled in Luxembourg. If a seller is UK VAT registered, then reverse charge rules for services are applied. This may change after Brexit; my personal opinion is that it should, the platforms should have a UK entity for the services they provide in order to reduce their scope for tax avoidance.

In terms of the new Digital Services Tax, eBay have been ethical and agreed to absorb it. Amazon will be adding it to the fees they charge third party sellers (thus defeating the entire purpose of the tax).

In terms of the level of control third party sellers have, that's an interesting discussion all of it's own ! Again, Amazon are the elephant in the room here, and for FBA sellers at least, it could be argued that Amazon has 100% control of the service and delivery, with very significant influence over the price (they effectively apply price caps and provide "guidance" as to what the price should be), and that the FBA sellers are merely providing Amazon with off-books inventory. It's only a matter of time before a seller argues that Amazon should treat them as PAYE !

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Replying to Alonicus:
By petestar1969
17th Aug 2020 13:23

If Amazon were to become liable for VAT for everything sold through their platform it wouldn't solve anything, they would just pass it onto their sellers who would either recover it if they themselves are VAT-registered, or pass it on to the end customers.

The second option would go towards the UK government's aim of trying to level the playing field between Amazon and the High Street retailers by making stuff bought on Amazon by Joe Public more expensive.

It probably won't do any harm to Amazon themselves in much the same way the new Digital Sales Tax will just be passed on.

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By Mister O
17th Aug 2020 12:56

Only Fans just seems like an update or modernisation on Spearmint Rhino to me?

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By Dwilliam
17th Aug 2020 16:10

My question as someone thinking of becoming a creator on OnlyFans is , if the 80% earned would be considered outside the scope of VAT and not count towards the Vat threshold, or if it would.

It's something that there seems to be a difference of opinion on both from accountants and speaking to HMRC online, HMRC have indicated that if the sales fall under the VATMOSS provision they may be considered outside the scope, but upon their advice i have written to the Enquiry team for their clarification.

Just wondering if you guys consider it a creator - b2b- OF - b2C end user , so in essence 2 transactions or if under the digital service rules its creator b2c (through OF) to end user and as such the income for the creator is outside the scope in relation to VAT

I run my own business dealing in Physical goods & have run a Vat registered company before so i am aware of how complicated VAT rules can be and as such need to figure out if i take up this venture if the Only Fans sales would be added to my turnover threshold for VAT or not.

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By AndrewV12
18th Aug 2020 11:47

scroll UPWARDS and look at the picture of the world, it sums up all the problems for tax legislator and tax collectors.

No boundaries, no boarders, no trading blocks, just a lot of glowing lights on a section of a globe and a load of pink neon lights connecting the lights.

Dont forget the sun newspaper headline, one Chelsea footballer pays more UK tax than Amazon and Starbucks.

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