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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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, We are starting a new business in the UK, all transactions

Customer Question

Hello,
We are starting a new business in the UK, all transactions will be UK only, no overseas transactions.
The concept is to match people that want to send documents, packages or parcels from one address in the UK to another address in the UK, with other people willing to collect and deliver the said item. This could be individuals or companies both sending and delivering items.
The payment for services rendered will be directly between the sender and the deliverer with us taking a percentage of the agreed delivery charge, we will not be charging the sender for the service, just the delivery the commission amount.
So for example: John wants to send a small package to London from Bristol, he uses our system to offer the job to the network of delivery agents already registered on our system. Delivery agents bid for the job and John accepts a bid for say £55 from Jane, a delivery agent, and a hold of this amount is placed on funds held in his online account with us. Once the delivery is complete John releases the £55 to the delivery agent. We then deduct our commission of say 10%, so £5.50 from the £55 and transfer £49.50 to Jane's balance. We would invoice Jane for the £5.50 commission and this, we think, is the part we would charge the VAT on. Our system will provide an automatic payment invoice/receipt to John for the £55 he paid to Jane, with all Jane's details on it and if Jane is a business she can optionally choose to have all her company and VAT information displayed on the invoice/receipt that John receives, including showing the VAT breakdown on the £55.
So our main question... is this the correct way to structure our system and are we going to be charging VAT on the correct transaction? We clearly do not want to be charging VAT on the full transaction value between the matched parties.
Any advise would be gratefully received.
Thank you.
Kevin
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Kevin, I'm Keith and happy to help you with your question.
Firstly your services are a standard rated supply. Once your fees reach or approach the 81K in any year you must register and account for VAT.
My immediate reaction is that your proposed method of operation is flawed. You should be issuing John with a 55 quid invoice and getting a 49-50 VAT invoice from the delivery agent, claiming back any input tax. However, were I in your shoes I would be inclined to ask your VAT office if your proposed modus operandi would be acceptable to them. They may accept that you can use the VAT Flat Rate Scheme which would be along the lines of your proposal. I would urge you to consult before you start to avoid any later problems.
I do hope I have shed a modicum of light on your question.
Customer: replied 2 years ago.

Hi,

Thank you for your comments, the problem we have with your suggestion is that if we invoice the sender for £55 including the VAT, then give £9.17 of that to the VAT man, then we are only left with £45.83, which would then not be enough to pay the delivery agent her £49.50... unless she happened to be VAT registered and 20% of that could be reclaimed by us.

The main issue here is that most delivery agents and customers will most likely not be registered for VAT to either claim back or charge us... this is why our preference is to only invoice for the service we actually supply, at the end of the day we do not supply the actual delivery services, the agents do.

My understanding of VAT is that it should be charged when and only if there is a supply of goods or services.

Expert:  bigduckontax replied 2 years ago.
Precisely Kevin, you have the nub of the problem. If the delivery agent is not VAT registered they you would make a loss. I gave you the answer from a purist's point of view.
It looks to me as if the VAT Flat Rate Scheme would be your way out of the situation, but I would urge you to discuss the matter with your local VAT Office. If you get it wrong when setting up you could be suddenly presented with a huge and unexpected VAT bill, and no one wants one of those. That is certainly the way I would proceed.
Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3358
Experience: FCCA FCMA CGMA ACIS
bigduckontax and 2 other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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