VAT and agents can create a real head scratch.
You may collect money for somebody else, deduct a commission and pass the balance across. But whose sale is it? Who accounts for VAT? Does the whole amount belong in your turnover, or just your fee?
The answer depends on the agency relationship.
For VAT purposes, one of the most important distinctions is whether we are acting in the name of our principal or acting in our own name.
In other words, are we clearly the intermediary, or do we appear to the customer to be the person making the supply?
About this episode
VAT, or Very Awkward Tax as we sometimes call it, becomes even more awkward when agents and principals are involved.
An agency relationship simply means one person or organisation acts on behalf of somebody else.
That could be:
- an accountant dealing with HMRC for a client
- a gallery selling artwork for an artist
- a theatre selling tickets for performers
- a music manager organising work for an artist
- an employment business bringing parties together
Not the James Bond type of agent. No tuxedo or Aston Martin required.
What matters for VAT is the commercial reality: who is making the supply, who the customer believes they are dealing with, whose name appears on the invoice and what the contracts actually say.
What is an agent for VAT purposes?
HMRC broadly treats you as an agent where you act for, or represent, another person called the principal when arranging supplies of goods or services.
The relationship needs to be genuine.
It can be written, verbal or established through the way the parties conduct themselves, but you should be able to show HMRC that you are genuinely arranging transactions for somebody else rather than trading on your own account.
A proper agent will not normally own the goods being sold or alter the nature or value of the principal’s supply.
This distinction matters because VAT follows the actual supply chain, not simply the label you put on your business.
Calling yourself an “agent” does not automatically make you one for VAT purposes.
There are usually two supplies
When an agent is involved, there will often be at least two separate supplies:
- the underlying supply between the principal and the customer, and
- the agent’s own service to the principal, usually in return for a fee or commission.
Keeping those two supplies separate is one of the keys to getting the VAT right.
For a wider VAT foundation, see our guide to VAT in the UK and how it works.
Disclosed agents: acting in the principal’s name
A disclosed agency relationship is the easier one to picture.
The customer knows that the agent is acting for somebody else.
Imagine an art gallery selling a painting for an artist.
The buyer knows who the artist is and understands that the gallery is arranging the sale rather than selling its own painting.
In that situation, the underlying supply is between the artist, the principal, and the buyer.
The gallery has a separate supply of agency services to the artist.
If the agency service is taxable and the gallery is VAT registered, the gallery accounts for VAT on its commission or fee.
The artist deals with the VAT on the underlying artwork sale according to their own VAT status and the VAT liability of that supply.
A simple disclosed agency example
Suppose an artwork sells for £1,000.
The gallery earns a commission of 20%, so its fee is £200.
The £1,000 does not automatically become the gallery’s sales income simply because the money passes through its bank account.
The gallery has collected the sale proceeds on behalf of the artist.
Its own income is the £200 commission.
If the gallery’s agency service is standard-rated and it is VAT registered, VAT applies to that £200 fee.
The artist separately considers whether VAT is due on the £1,000 artwork supply.
Undisclosed agents: acting in your own name
An undisclosed agency relationship works differently.
Here, the agent acts in their own name and the customer may not know who the underlying principal is.
This is the more secret-agent version of the arrangement.
For VAT purposes, HMRC can treat an agent acting in their own name as taking a much fuller part in the supply chain.
For goods, where the agent issues an invoice in their own name, the transaction can be treated as though the goods were supplied to the agent and then supplied onwards by the agent.
That means the underlying transaction may appear in the agent’s VAT accounting as both an incoming and an outgoing supply.
The agent may also have to account separately for their agency service or commission, depending on the particular arrangement.
The exact treatment can become more technical for services, international transactions and margin-scheme goods, so this is an area where the contract and invoicing arrangements matter enormously.
Disclosed vs undisclosed agency at a glance
| Disclosed agency | Undisclosed agency |
|---|---|
| Customer knows the agent acts for a principal | Agent acts in their own name |
| Underlying supply normally remains between principal and customer | Agent may be treated as receiving and making the underlying supply for VAT |
| Agent normally accounts for its own agency fee | Underlying transaction may also run through the agent’s VAT records |
| Principal deals with VAT on the underlying supply | Agent may account for output VAT on the onward supply |
Do not confuse money collected with your own sales
This is one of the most common practical mistakes.
An agent may receive £1,000 from a customer, deduct £200 commission and send £800 to the principal.
That does not necessarily mean the agent made £1,000 of sales.
If we are genuinely acting in the principal’s name, the money collected for the principal is money we owe to them.
It should normally be recorded separately from our own income.
Think of it as money passing through our hands rather than money belonging to us.
Mix the two together and suddenly turnover, profit and VAT reporting can all become distorted.
Invoices need to match the agency relationship
The paperwork should tell the same story as the commercial arrangement.
Where we act in the principal’s name and the principal is VAT registered, the VAT invoice for the underlying supply should normally be issued by the principal to the customer, either directly or through us.
We then invoice the principal for our own agency services.
Where we act in our own name, different invoicing rules can apply because we may be treated as part of the supply chain for VAT purposes.
So do not decide the VAT treatment after the invoices have already gone out.
Set up the relationship correctly first.
For the wider invoice rules, see our guide to VAT invoice requirements.
Your contract matters
A written agreement is not the only way an agency relationship can exist, but it is extremely useful evidence.
The contract should make clear:
- who the principal is
- who the agent is
- what the agent is authorised to do
- whether the agent can enter contracts in their own name
- who sets the selling price
- who owns the goods or provides the service
- who bears commercial risk
- how commission is calculated
- who issues invoices
- who receives customer money
Most importantly, the paperwork needs to reflect what actually happens.
A beautifully drafted contract will not rescue an arrangement where everyone behaves differently in practice.
VAT registration for agents and principals
Both parties need to monitor their own taxable turnover.
The current compulsory UK VAT registration threshold is £90,000 of taxable turnover.
For a disclosed agent, the agent’s taxable turnover will usually include its taxable fees and commissions, rather than automatically including all money collected for principals.
The principal needs to monitor the value of their own taxable supplies.
If the agent makes supplies in their own name, those supplies can also be relevant to the agent’s VAT registration position.
This is another reason why getting the agency classification right matters before the numbers start building up.
What if the principal is not VAT registered?
If the principal is not VAT registered, they do not simply add VAT to their underlying sale.
But if the agent is VAT registered and charges a taxable agency fee, the agent may still have VAT to account for on that fee.
So the VAT position of the principal and the VAT position of the agent need to be considered separately.
One party being outside VAT does not automatically take the other party outside VAT as well.
Common VAT and agency mistakes
- Calling yourself an agent without having a genuine agency relationship.
- Recording all money collected for a principal as your own turnover.
- Charging VAT on the entire transaction when you are only making an agency supply.
- Charging VAT only on commission when the arrangement actually makes you a principal for VAT purposes.
- Failing to keep contracts and evidence showing the nature of the relationship.
- Using invoices that contradict the stated agency arrangement.
- Ignoring the VAT registration threshold for either the principal or the agent.
- Assuming every employment, travel, ticketing or marketplace business follows the same agency VAT treatment.
VAT and agents: practical checklist
- Identify the principal. Who actually owns the goods or makes the underlying supply?
- Confirm whether you really are an agent. Do the agreement and working practices support that?
- Decide whether you act in the principal’s name or your own name.
- Map the supplies. Separate the underlying transaction from the agency service.
- Check each party’s VAT status.
- Make sure invoices match the commercial reality.
- Separate client money from your own sales in the accounts.
- Monitor taxable turnover for VAT registration.
- Review unusual arrangements before invoicing. Especially international supplies, margin schemes and sectors with special VAT rules.
FAQs
What is an agent for VAT purposes?
An agent acts for or represents a principal when arranging supplies of goods or services. The relationship must genuinely exist and should be supported by the agreement and the way the parties actually operate.
Does an agent charge VAT on the full sale price?
Not necessarily. If the agent acts in the principal’s name, the agent will normally account for VAT on its own taxable fee or commission, while the principal deals with the underlying sale. If the agent acts in its own name, different rules can apply.
What is a disclosed agent?
A disclosed agent is an intermediary whose role and principal are apparent to the customer. The underlying supply normally remains between the principal and the customer.
What is an undisclosed agent?
An undisclosed agent acts in their own name, so the third party may not know the identity or involvement of the principal. For VAT purposes, the agent may be treated as receiving and making the underlying supply.
Does money collected for a principal count as my turnover?
Not automatically. In a genuine disclosed agency arrangement, money collected on behalf of the principal is normally distinguished from the agent’s own fee income. The exact VAT treatment depends on the contractual and invoicing arrangements.
What is the current VAT registration threshold?
The compulsory UK VAT registration threshold is currently £90,000 of taxable turnover. Businesses below the threshold can also choose to register voluntarily.
Episode Timecodes
- 00:00 – VAT and agency relationships
- 02:08 – What is an agent?
- 02:48 – Theatre, employment and creative-industry examples
- 03:18 – Galleries, artists and music management
- 04:26 – Disclosed and undisclosed agency
- 06:01 – VAT treatment of an undisclosed agent
- 06:50 – VAT treatment of a disclosed agent
- 07:13 – The £1,000 artwork and commission example
- 07:56 – Where accounting mistakes happen
- 08:54 – Responsibilities of the principal
- 09:39 – Contracts and documentation
Related episodes and guides
- VAT in the UK: How It Works and How to Stay Compliant
- What Are Your VAT Responsibilities?
- What Is VAT Reverse Charging?
- VAT Invoice Requirements
Key takeaway
With VAT and agents, the first question is not “how much VAT do we charge?”
The first question is: who is actually making the supply?
If we act transparently in our principal’s name, the underlying supply normally remains between the principal and customer, while we account for our own agency service.
If we act in our own name, the VAT rules may pull us further into the transaction and treat us as receiving and making the underlying supply.
Get the relationship clear, make the contracts and invoices agree with it, keep principal money separate from your own income and monitor the VAT position of both parties.
Do that and Very Awkward Tax becomes considerably less awkward.
Further Support
If you act as an agent, use agents in your business or are unsure whether you are actually trading as principal, you can contact us for an initial chat.
You can also use our free online business calculators to support your wider business, VAT and cash-flow planning.
For more practical tax and finance guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.
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