March 06, 2023
Article
This decision has attracted a bit of media attention, although focussed on the fact that the taxpayer, Fenix, operates the Only Fans website which (I’m told) features mostly adult content.
The VAT techy bit is in my opinion, more interesting, and is relevant to clients who either operate a platform enabling consumers (“fans”) to access content created by others, or who are themselves content creators. It doesn’t matter whether the subject matter is for example adult content, music, or instructional videos.
Fenix charges content creators a fee/commission for the operation of the platform and payment handling services. This fee is 20% of the amount paid by a fan to access the creator’s content. Fenix argued that it was only liable to pay VAT on its 20% commission, but HMRC successfully argued that it should account for VAT on all sums received, including the 80% it passed on to creators.
The key issue is a special rule to make tax collection in relation to B2C downloads, simpler for the Tax Authorities, bearing in mind that supplying digitised content to private individuals outside the UK may be liable to VAT in the country where the consumer is based. Making the platform, rather than a multitude of creators, responsible for paying the VAT, is far easier to police.
This special rule means that even if the fan knows that the platform is only acting as the creator’s agent, the platform will be treated for VAT as if it had bought the content from the creators and resold it to the fans if the platform authorises the charge to the customer, or the delivery of those services, or sets the general terms and conditions.
If Fenix had simply offered a “clickthrough” to the creator’s own website, such that the fan would have downloaded content direct from the creator and contracted with and paid the creator, Fenix might have been correct to only charge VAT on its commission/clickthrough fees.
The case transcript doesn’t give a breakdown of the proportion of fans that are in the UK, so there could be an overseas VAT liability in addition to the £11 million VAT HMRC has demanded.
In relation to the creators, providing content in return for remuneration will normally be a supply for VAT purposes. For VAT registration purposes, all taxable income needs to be taken into account thus depending on the level of their supplies, UK creators may need to register for UK VAT, and charge VAT on their supplies made to a UK platform, e.g. Fenix.