Is VAT due on bank commission?

[Billy2Times]

hi, a simple question from this first time poster.

i have a rather lucrative deal setup with a well known high street bank. Using my connections in the local Chamber of Commerce i've referred no fewer than 35 people to this bank, and their business bank account.

here's the deal:

i've agreed that they will pay me a set commission for every new business customer that i refer. The commision will be payable each quarter and is based on the sign ups for the previous 3 months.

my question is this:

Let's say the bank pays me £100 a quarter. Do I need to account for VAT on this amount or is it VAT exempt? I hoping it's the latter because if it is VATable, I'm not making £100 a quarter, i'm making £85.10

in case you need to know, i use standard vat accounting (not flat rate or anything else).

thanks

[Dave Marples]

Hi

The answer to your question will depend to what extent you are involved in the process between the prospective accountholder and Bank.

You will be seen as earning commision as an 'intermidiary' and for this to be treated as an exempt supply of financial intermidiary services you need to satisfy specific criteria. The legislation is contained within VAT Notice 701/49/09 and in particular Sections 9, 9.1 & 9.3 (see link below)

HM Revenue & Customs

An exempt supply of intermediary services is where you bring together a person seeking a financial service with a person who provides a financial service and stand between the parties to a contract and act in an intermediary capacity, and undertake work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed.

Work preparatory to the completion of a contract refers to work done of a specialised nature. This could include helping to set the terms of the contract or making representations on behalf of a client, but would not include work done of a general nature such as administrative or clerical formalities.

So the crux of the matter is to what extent do you carry out work of a specialised nature?

If you merely advise someone to use a particular bank, you will have been involved as an intermidiary but you will not have done any work of a specialist nature and so the commission earned would not fall within the exemption.

On the assumption that this is the case VAT would be due on the commission.

You could, of course, try to provide work of a specialised nature to ensure that you meet the criteria for exemption but the cost/time for doing this may be worth considerably more that the £14.90 VAT you would be saving.

I think you will just have to be happy that you have the lucrative deal albeit not quite as lucrative as you first thought.

Regards

David