HMRC VAT Taxable Person Manual: Agency and disbursements: how to distinguish agency: the six indicating factors

The following are six factors which we say are normally present in an agent/principal relationship.

  • Title This is the most important consideration when dealing with supplies of goods. In a true agency relationship, title always remains with the principal; the agent never assumes ownership of the principal’s goods, but merely buys and sells them on the principal’s behalf.
  • Identity The goods or services bought or sold by the agent on behalf of the principal must be clearly identifiable.
  • Value The principal must know the exact value at which goods or services have been bought or sold on his behalf and any discounts which the agent obtains must be passed back to the principal.
  • Separation The value of the agent’s service must be separately identifiable from the main supply, and should normally be known to the principal; although it can be based on an agreed percentage of the sale or purchase price. It is an established legal principle that a true agent cannot make a secret profit from his agency; but the fact that the exact amount of the agent’s commission is not disclosed to the principal would not, of itself, invalidate an agency arrangement. However, the agreement between them must make it clear that a charge is to be made and establish the basis of its calculation at least.
  • No change The direction of the main supply between buyer and seller cannot be altered by the intervention of the agent.
  • Nature and value Agents cannot alter the nature or value of supplies which they arrange for their principal – although the principal may give his authority for the agent to negotiate a different price. (Currently, this would not include liability, as it is possible that in some instances the intervention of an agent, particularly where goods are concerned, can alter the liability of the supply.) Examples here would be the export of goods where the zero-rating may be applied by the last party in the chain who actually exports the goods and in other instances, where certain specified goods for the disabled are sold through agents who are able to zero rate the supply because of the disability status of the recipient.



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