I am new to this forum but it has been a pleasure to read many of your insightful contributions. I am setting up a startup in the UK and would kindly ask for your advice.
Situation: I am incorporating a company in the UK in January as we are building an online marketplace for bands / DJs. This is the same model as AirBNB, where we charge a transaction fee on each booking. Artists are booked directly from clients, so we are not acting as an agency. We are taking this transaction fee from the artist's performance fee. For example, client X is paying Artist Y £500 for his service (paid online through our platform with an escrow service) and we take £20 for us (so Artist Y receives £480).
Question 1: I am correct to assume that we need to collect VAT only on this transaction fees (£20 + VAT)? This is what AirBNB does.
Question 2: how is the VAT collected from client X with regard to the performance fees? The invoice sent from Artist Y should always include the VAT?
Question 3: what happens when either client X or Artist Y is not VAT registered?
Many thanks for any of your contribution. I am happy to take email addresses of contributors and send you a discount code once we are set to launch!
Hello Myke
AirBNb is governed by US law, rather than UK law, although they will have clearly covered the VAT angle (including other taxes angle) in their terms.
This is a complex VAT area. The way you describe collecting money on behalf of guests to pay artists leaves me to consider that you are an agent, but we do not know the full mechanisms you are employing. In additiion, are you supplying the services of artistes to guests abroad or just in the Uk, as this changes the rules drastically. Also you need to take great care in the management of 'clients monies' and cover off the refunds position carefully and in accordance with Uk law.
I would suggest that you get a suitably qualified Accountant on board at the earliest opportunity to ensure this is set up and explained properly. We cannot give such advise without a lot of additional detail. In addition, you will see from the forum intro that this site is for bookkeepers and Accountants.
Sounds like an interesting new business so I wish you luck with it.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
And you should engage a lawyer to ensure that your contracts say what you want them to say. UK Agency law is complex, and will affect your VAT position as well.
(And, hoping for a slice of Joanne's Christmas cake!)
