Reply To: VAT on contractor income

Forum Categories GENERAL VAT DISCUSSIONS VAT on contractor income Reply To: VAT on contractor income

Trevor S

The reason that I’d assumed option 1 was because:

  • you knew how much the ultimate customer was paying – this would be unusual if there was no contractual relationship between you and them, as the amount would be irrelevant; and
  • the terms “retained by them” and “commission” might imply that the amount paid by the ultimate customer is “your” money, just being handled by the company.

If it is option 2 and you’re VAT registered, then whatever income you receive from the company needs to be subject to VAT.  They would be able to recover any VAT you charged them.  Is it possible that some people who do work for them aren’t VAT registered?  If so, if you told/proved to them that you are VAT registered, would they pay you £52+VAT, instead of just the £52?

If the company is a very large firm, I’d expect that there are detailed contracts or terms and conditions documents in place?  If so, may be worth asking your accountant or an advisor to read through them and give their view on whether the company is:

  • your agent in your supply to the ultimate customer (my option 1); or
  • your customer and a principal in the supply to the ultimate customer (my option 2).

The amounts in this example may be small, but the potential for VAT errors could become more significant if you start to do a lot of work through/for them.

As before – I’m assuming that the work isn’t construction-related, as there are different rules for contractors and subcontractors in the construction industry.