3 common issues with intellectual property licencing agreements

Tolls operated entirely by a public authority under a special legal regime are outside the scope of VAT . If in doubt, you can check validity of a VAT number issued by any EU member state. You or your agent should make sure that official evidence is obtained, where required, of VAT chargeable on imported goods and goods removed from warehouse. If you’re unsure about the validity of a supplier’s VAT invoice see paragraph 16.8 for more information. For more information and to ensure you complete your VAT return correctly, see Check when you can account for import VAT on your VAT Return from 1 January 2021.

The relevant limits are set out in the supplement to Who should register for VAT (VAT Notice 700/1). If you’re an agent, and the value of your taxable supplies is above a certain limit you must register for VAT. The value of your taxable supplies includes both the value of your taxable supplies to your principal and the value of any taxable supplies which you make in your own name. It’s important to remember that the VAT treatment of the supply you arrange does not affect your liability to account for VAT on your own supply of services to your principal. You must not reclaim input tax under this procedure before you have accounted for the relevant output tax. But, provided that the invoicing for the supply is between the principal and the customer, the only supply for VAT purposes being made by you will be the provision of your services to your principal.

1 Introduction to apportionment of output tax

A VAT-registered person uses an agent to buy standard-rated goods or services from another VAT-registered person . A VAT-registered person supplies standard-rated goods or services for £100 plus VAT to another VAT-registered person. If you’re an agent arranging a supply of services and both https://www.bollyinside.com/featured/the-primary-basics-of-successful-cash-flow-management-in-construction/ you and the supplier are registered for VAT, and the supplies are taxable, then you may treat yourself as both receiving and supplying those services. You must make sure that your return is received and any payment due clears HMRC’s bank account by the due date shown on the return.

• As for the formula itself, it’s flexible based on the multiplier you choose.
• Natural Resources & Energy Managing commodity price volatility, international operations and regulatory compliance in the most challenging markets in the world is not easy.
• Although HMRC’s aim is always to provide a high standard of service, sometimes things may go wrong.
• This section explains the procedures that exist to settle disagreements between you and HMRC on VAT matters.
• If you use goods or services in your business, which the business itself has made or acquired, no VAT is normally due.
• This also applies if a change in the circumstances of a registered business makes a new registration necessary (see paragraph 26.2).

Your customers need VAT invoices as evidence for reclaiming, as input tax, the VAT you have charged them. If you receive periodic payments of rent or ground rent, the tax point is the date you receive a payment or the date of issue of a VAT invoice if the supply is standard-rated, whichever happens first. If you’re in business, you must register for VAT when the total value of any of your taxable supplies, distance sales or relevant acquisitions goes over the current registration thresholds.

When does this exception apply?

This also applies if a change in the circumstances of a registered business makes a new registration necessary (see paragraph 26.2). If credit notes are issued without a VAT adjustment, they should state ‘This is not a credit note for VAT’. Even if you and your customer decides not to adjust the VAT on credit notes which pass between you, you will still need to adjust your records of outputs and inputs in order to complete your VAT Return. If you issue construction bookkeeping invoices to persons in an EU member state, credit or debit notes which amend those invoices must contain all the information required to be included on an invoice. If there’s no consideration for the supply, VAT is due on the cost of the supply. Over any period of time, this is the amount of depreciation on the goods plus any other standard-rated costs related to the goods multiplied by the proportion that the private use forms of the total use.

Some supplies of services to overseas customers are zero-rated, but many are standard-rated. If your customers are registered for VAT and the supplies are for use in their business, the VAT is their input tax. In the same way, VAT charged to you on your business purchases is your input tax. If you make taxable supplies (standard-rated, reduced-rated or zero-rated), you have to account to HMRC for the VAT due. If you make retail sales or provide services to the public, there are a number of special retail schemes which you may use to work out the VAT on your supplies.

4 Recording supplies you make and working out your output tax

To ensure the discounts and deductions have been appropriately applied, a conversation should be had at the start of discussions to understand how they recognise their revenue, and how this is then reported. Otherwise, there is a risk that licensees will be reporting their net sales less any deductions and discounts, rather than based on their gross sales, which can result in understating the revenue reported. We have strong relationships with many media and financial services specialists, including licensors, licensees, investors and lawyers. A price concession granted to a customer could be within the scope either of the variable consideration guidance or the contract modification guidance depending on the facts and circumstances. Facilities management and property services Get insight and strategic support to take opportunities that protect resilience and drive UK and international growth. Public sector advisory To deliver excellent public services, local and central government need specialist support.

• As an agent, you may sometimes take a minor role in a transaction, and simply introduce your principal to potential customers or suppliers .
• It is likely that, as a result of changes in the economic environment, customers will seek to modify contracts.
• As an alternative to criminal proceedings, HMRC may accept a financial settlement in place of proceedings pursuant to the HM Revenue and Customs Management Act 1979, section 152.
• Principals cannot avoid their liability to account for VAT on their supplies or to pay VAT on their purchases by using an agent.
• The risk of not having clear clarification when a contract or amendment covers multiple companies within a group, is that it is easy to lose the transparency when it comes to reporting, as transactions between the companies may not be reported on.
• For further information see Group and divisional registration (VAT Notice 700/2).

The situation can become even more complex when a product exists solely or primarily as a licence. A classic example exists in fashion, where the brand name is a particular celebrity who has ‘created’ his or her own line of fashion wear or perfume. https://www.good-name.org/how-accounting-services-can-help-real-estate-companies-optimize-their-finances/ However, it’s not like that person will have designed, manufactured and marketed all those clothes or that fragrance personally. Each contributor may have multiple payees and each payee can be configured to increase payments to include VAT/GST/HST.