Is VAT due on affiliate payments?

Arthien

Hoping someone can advise or point me in the right direction. My husband is looking to set up a software as a service company which would make money by offering a service which eventually sends customers through to another website and he would receive a payment from that company as an affiliate. He would not take any payments from customers directly.

Assuming it eventually does well enough to hit the threshold for VAT, I'm unsure as to whether VAT would be chargeable or payable? We're expecting the majority of the customers to be UK-based but obviously with it being online there's no guarantees unless he limits it somehow to UK customers only. I believe the website he'll be referring them to is non-EU based, if that makes any difference at all? We'll be booking some time with a specialist advisor at some point but just wanted to get a rough idea of where we stand if possible.

unforeseen

Sounds like he is providing a service to the end company by forwarding clients and getting paid for it so it will be VATable.

Scarpacci

You'll need to see where the individual affiliate marketing companies (that is to say the network - eg. Commission Junction, Affiliate Window) is based. Your husband would be providing services to them - not the people who sign up for a service or the company whose services he would be advertising.

Most of the big players are not UK based, they're either based elsewhere in the EU in which case they account for VAT under the reverse charge mechanism, or they're outside the EU and this falls outside the scope of UK VAT. Only if the affiliate network is based in the UK would VAT be due here by your husband. As an example, Webgains and Affiliate Window are.

The corollary of this is that for services your husband buys from companies based in other EU states - such as Google Adwords or Facebook Advertising - he must account for the VAT under reverse charge. The VAT total to be calculated then basically becomes: Services supplied to UK based networks + Services supplied by EU based companies.

As always, do your own research and make sure you understand the VAT position of the actual companies you deal with (their help section should offer guidance). Talking to an account can help - if they actually understand the field. Your run of the mill account might not and could create more confusion.

somethingcorporate

If the turnover is approaching £70k you should get the help of a specialist VAT advisor & an accountant, better to be safe than sorry.

Arthien

We're certainly planning on getting professional advice too, but it's all in the preliminary stages at this point, just trying to think ahead so nothing major gets missed or forgotten when we go for an appointment. I've no idea how to go about finding someone experienced in such an area, as I've read on other forums where accountants have given opposing advice due to not being familiar with the affiliate process.

Certainly there is a lot of contradictory advice on other forums over similar topics, but it looks like as long as the company the customers are being passed onto is non-EU based then VAT isn't a factor for our service supplied. I believe the website is based in Singapore, but I'm not sure whether that's the location that matters, or the location of the parent company. Thanks all for the feedback, it's good to read different perspectives and it's all food for thought.

TheCyclingProgrammer

Scarpacci wrote: »

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The corollary of this is that for services your husband buys from companies based in other EU states - such as Google Adwords or Facebook Advertising - he must account for the VAT under reverse charge. The VAT total to be calculated then basically becomes: Services supplied to UK based networks + Services supplied by EU based companies.
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Correction to the above: you would need to account for VAT under the reverse charge for any services purchased from outside the UK, not just EU based suppliers.

Also, you can only apply the reverse charge if you're VAT registered. If you aren't, the value of the purchases count towards the turnover registration threshold.

Other than that the post was spot on. OP's husband is supplying a service to the affiliate company and the VAT liability depends on the place of supply. The person being referred or where they are being referred to is irrelevant.

So long as the service would be taxable if supplied in the UK (so not exempt) then there is nothing stopping you from voluntarily registering for VAT which would enable you to reclaim VAT on purchases though you would then need to account for VAT on any affiliate income from UK based networks.

somethingcorporate

As you can gather from the contradictory "advice" it's a complex area with a lot of un/ill-informed individuals. I suggest you seek specialist help prior to making the plunge.

TryingToWork

Arthien wrote: »

Hoping someone can advise or point me in the right direction. My husband is looking to set up a software as a service company which would make money by offering a service which eventually sends customers through to another website and he would receive a payment from that company as an affiliate. He would not take any payments from customers directly.

Assuming it eventually does well enough to hit the threshold for VAT, I'm unsure as to whether VAT would be chargeable or payable? We're expecting the majority of the customers to be UK-based but obviously with it being online there's no guarantees unless he limits it somehow to UK customers only. I believe the website he'll be referring them to is non-EU based, if that makes any difference at all? We'll be booking some time with a specialist advisor at some point but just wanted to get a rough idea of where we stand if possible.

I'm currently researching this for myself. I realise this is nearly a 2 year old thread, but there is a lot of misinformation on the subject. And this might help others looking into this. I have spent a long time researching this, and have included gov.uk links.

Most affiliates are not affected, and especially not if they use a VAT registered Affiliate network, such as Clickbank. Clickbank is the only network I know is definitely VAT registered in all the countries it needs to be. You will have to check if the affiliate network you will be working with is VAT registered (not just in the UK, but in all 28 "states", as it has to cover all buyers of products).

Here is a link regarding VAT rules for sellers of digital products via a digital portal (VAT registered network):

https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#digital-portal

it states:

Digital portals, platforms, gateways and marketplaces

If you supply e-services to consumers through an internet portal, gateway or marketplace, you need to determine whether you’re making the supply to the consumer, or to the platform operator.

If the platform operator identifies you as the seller but:

• sets the general terms and conditions
• authorises payment
• handles delivery or download of the digital service

then the platform operator is supplying the consumer.

The platform operator is therefore responsible for accounting for the VAT payment that’s charged to the consumer.



Anyone looking to sell digital services (not physical products) on their own website, without using a VAT registered portal, will want to read the rest of that page, as you will likely need to be VAT registered, even if earning lower than the UK VAT threshold. Sadly for those businesses (no matter how small), even if they only sell one digital service, such as a downloadable How To course, they still need to be VAT registered. And they have the added nightmare of trying to work out where each of their customers is based.

This chart explains what products and services the seller has to be VAT registered for (ONLY if selling on their own site):

https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#defining-electronically-supplied

Hope the OP's husband got sorted out, and that this helps new viewers of this post.

Pennywise

somethingcorporate wrote: »

As you can gather from the contradictory "advice" it's a complex area with a lot of un/ill-informed individuals. I suggest you seek specialist help prior to making the plunge.

I'm an accountant and won't touch this kind of thing because it's very specialised and even the tiniest of detail can change the VAT treatment. I've been on courses run by the top firms where leading specialist speakers have contradicted eachother. If accountants can't get proper advice, then it's hardly surprising that some are giving potential clients different information.