VAT & Agency

Some clients wish to be treated as Agents when facilitating supplies made by third parties to Customers. The issue, of course, is whether the Agent is responsible for VAT on the full price, or only on the amount it retains after paying a share to the third party.

It is important that the contractual position and the economic reality reflect this, as illustrated by a recent case heard before the Tribunal.

All Answers Ltd offers to provide students with essays, coursework, or dissertations. Customers specify their requirements, dealing direct with All Answers, who will then outsource the work to third party writers. These writers are, generally, lecturers, teachers, or PhD students and are not VAT registered. HMRC argues that All Answers is responsible for VAT on the total amount payable by the Customer, not just the proportion it retains. (The writer gets about 1/3rd of the fee, the rest accruing to All Answers for administration and marketing.)

The Tribunal had to decide whether All Answers is just an Agent in facilitating the supply of the essay from the writer to the Customer. The writer’s identity is never disclosed to the Customer, (this stops a writer’s employer knowing that the writer is moonlighting and prevents a repeat customer going direct to the writer) and the obligation to provide the Customer with appropriate work, on time, rests with All Answers.

Having already lost the argument, on earlier versions of its contracts, before both the First Tier and Upper Tribunals, All Answers revised its contracts to try to show that it was simply an Agent. The major change was that the writer now retains the copyright in the work, with limited rights passed firstly to All Answers so that it could grant the customer limited rights. The Customer does not acquire the copyright or the rights to submit the work, in whole or in part, as their own work.

All Answers stresses that it is not promoting cheating, merely providing a model answer, of a standard specified by the Customer, to help the Customer draft their own work.

The new Tribunal obviously considered that these revisions to the way the Customer acquires the limited rights didn’t alter the VAT position.

Overall, the Tribunal decided that both the contractual position, and the commercial and economic reality, was that All Answers was still liable to VAT on the full consideration. It had not done enough to change the position. Fundamentally, All Answers, and only All Answers, has the obligation to provide a limited right to use academic work of suitable quality, within the agreed timescale, and that in return for All Answers assuming that obligation, a Customer pays them a sum of money.