ESM5010 - VAT
The Law听
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UK VAT law on the question of employment status is covered by Section 4(1) of the VAT Act 1994, which states:听
VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.听
This was originally derived from Article 9 (1) of the Council Directive 2006/112 (바카라 사이트淭he 바카라 사이트淧rincipal VAT Directive바카라 사이트�), which deals with the subject of 바카라 사이트淭axable Persons바카라 사이트�
Paragraph 1 of Article 9 defines a taxable person as follows:
바카라 사이트淭axable Person바카라 사이트� shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.听
The remainder of that paragraph describes those economic activities:
Any activity of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions, shall be regarded as exonomic activity. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.
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Article 10 clarifies the meaning of the word 바카라 사이트渋ndependently바카라 사이트� in Article 9 (1):听
The condition in Article 9 (1) that the economic activity be conducted 바카라 사이트渋ndependently바카라 사이트� shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards working conditions, remuneration and the employer바카라 사이트檚 liability.听
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The effect of the above is that where employees act on behalf of their employers, they are not 바카라 사이트渢axable persons바카라 사이트� and their activities are therefore outside the scope of VAT (although they could of course be self-employed and thus 바카라 사이트渢axable persons바카라 사이트� in another context).
How to determine Employment Status for VAT purposes?
HMRC considers the same factors when determining employment status for Direct Tax, and VAT purposes. As a result the status should be the same regardless of which section within the department is considering it, unless there are clear reasons to do otherwise.
For Direct Tax purposes earnings from employment are normally chargeable as employment income and earnings from self-employment chargeable as trading income. Consequently, persons who have income from more than one source can be chargeable to both employment income and trading income. If a trader is chargeable to both employment income and trading income, then only the gross monies earned from the work chargeable under trading income should be considered as being potentially subject to VAT and for which registration may be appropriate.
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Exceptions to normal practice.
There are however, occasions when we cannot follow the same practice for Direct Tax and VAT purposes. For example, the treatment of 바카라 사이트淥ffice Holders바카라 사이트� for Direct Tax purposes is not determinative of whether the activity is undertaken by way of business.
HMRC sometimes agree to tax all of a person바카라 사이트檚 income as chargeable under either employment income or trading income for administrative convenience, even though that person may receive income of both types. There will be instances where a trader argues for a different VAT status from his Direct Tax status and, in other instances, the personal tax status of a person may be unknown or undecided. However, on all these occasions you will need to examine the contracts that have been entered into, to decide which are contracts of service (employment) and which are contracts for services (self employment).