Independent VAT Consultant
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VAT fail for essay-writing taxpayer

21st Dec 2018
Independent VAT Consultant
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essay writing

An essay-writing business was acting as the principal, and not as an agent, between the students and the authors. The VAT assessment for over £900,000 was correct.

Trading facts

I am glad that I was sitting down when I read the case of All Answers Ltd (TC6845) because I never realised that the services offered by the taxpayer existed.

The company supplies completed essays, coursework and dissertations to students studying for exams. The essays are written by academic experts in the particular subject, enabling the students to submit them to their course providers for assessment.

To add an extra layer of intrigue, the student can specify what grade they want to achieve with the work – ie setting the academic standard of the essay. Although the student is not supposed to claim the work is their own, it was accepted this happens in practice.

VAT issues

The VAT challenge was simple: it came down to the classic three-party arrangement that causes so much confusion in the VAT world about “who is supplying who”. Accountants who act for taxi firms, hairdressers and event promoters will be familiar with this issue.

Agency arrangement

Was the taxpayer acting as agent in bringing together the author and the student? In this case, the output tax is only payable on two-thirds of the commission retained by the agency.

Acting as principal

Was the reality that the author was working as a subcontractor for the taxpayer, and the taxpayer was supplying a completed essay as principal to the student? In this case, the output tax is due on the full payment made by the student. This is what HMRC concluded, hence the disputed assessment for £904,168 in relation to VAT underpaid between January 2012 and September 2015.

Two stages

1. Consider contracts

The court spent a lot of time considering the terms and conditions ticked by the student placing the order and concluded that: “contractual documents … are designed to disguise the nature of the business” and also referred to the “artificiality of the terms and conditions”. This is a key feature of the VAT world, namely that contracts are irrelevant if they do not reflect what is happening in practice.

2. Establish the economic and commercial reality

The economic and commercial reality of a deal always supersedes what is said on a contract or sales invoice. To give an easy example, if I provide VAT consultancy services to an accountant but the terms of engagement say I am a cricket coach, it is what I do that counts – ie my consultancy work.

The court highlighted a number of key factors in concluding that the taxpayer was acting as a principal:

  • The student and author did not know each other’s identity.
  • Customer perception from the company website was that the students thought they were dealing with the taxpayer and not the author.
  • The author invoiced the taxpayer and was paid from the taxpayer’s own bank account.
  • There was no evidence that the taxpayer was fulfilling an agency function; it was supplying a completed essay to the student, which it had acquired from an expert it had hired as a subcontractor.

Handbags at dawn

I recently reviewed a website that gave owners of expensive handbags the chance to hire them out to people who temporarily needed them eg for a posh wedding. I had to weigh up all of the arguments for and against the agency argument.

I concluded in the end that it was an agency arrangement, with output tax due on the commission, because all of the dealings were done between the handbag owner and hirer – and if there was any problem with the item (for example, if a fake rather than genuine handbag was supplier) then the dispute was sorted out between the two parties and not the agency. If you act for any websites, now is a good opportunity to check that the VAT accounting is correct.

And finally

I can confirm that this article is all my own work - even if you think it is only worth a D-minus!

Replies (4)

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By Justin Bryant
21st Dec 2018 11:36

It is worth noting that this contract analysis of the parties' real world intentions is not just limited to VAT cases per my comment in the link below (it is often deployed in tax avoidance cases generally and IR35 cases of course):

That this analysis is common in VAT can be seen from the recent CoA case below (summed up at para 37, but then paras 61 & 62 show the contract terms can be very persuasive if not conclusive in most cases - so possibly this taxpayer has been treated a bit harshly here and should appeal):

Thanks (1)
By stepurhan
21st Dec 2018 15:57

"Although the student is not supposed to claim the work is their own, it was accepted this happens in practice."

Why would anyone buy an essay if they weren't planning to submit it? What legitimate purpose do they serve?

We so often talk in the forums about people passing themselves off as professionals whilst knowing nothing. This sort of business is one way such things happen. What is the point of having a qualification if someone can fraudulently gain one through such a service?

Thanks (1)
Replying to stepurhan:
By EnglishRose
27th Dec 2018 17:17

In September 2018 there was yet another call to ban these companies -

They facilitate fraud so probably it is some kind of conspiracy offence. Whilst I can see someone might want to buy some examples of a good UCAS statement if their school is useless at helping you with university and you just want to see an example or possibly might want to see what a good essay is like (although there you surely ask a fellow student who gets high grades to show you) most of the time it sounds fraudulent to me.

Thanks (1)
By EnglishRose
27th Dec 2018 17:19

It sounds like this was right on its facts. I spent quite a few emails last week trying to get a client to work out who was going to sell the goods to whom from a website where two business parties were involved. I get this all the time. In the end they were clear we would sell the goods to the new platform and they would then resell them - so what you might call the classic Amazon model compared with say an amazonmarketplace sale where it is made very clear you are buying from John Smith lighting shop rather than contracting with Amazon. However I had had lots of examples over the year where it is as clear as mud.

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