Creator agency fees and VAT can create a problem that is easy to miss when your management agency collects money from brands before paying you.
Suppose a brand agrees to pay £10,000 for a campaign. Your creator agency deducts its 20% commission and transfers £8,000 to you
Which figure counts towards your VAT taxable turnover: £8,000 or £10,000
The answer isn't necessarily the amount that reaches your bank account. It can depend on the contractual relationship between you, your agency and the brand.
You first need to establish whether the agency acts on your behalf or contracts with the brand in its own right. This can affect the value of your supply and, potentially, when you need to register for VAT.
In this guide, we look at creator agency fees and VAT. We explain why gross and net income can produce different results and what to check when calculating your VAT taxable turnover.
Why agency commission doesn't always reduce your VATable turnover
If your management agency deducts commission before paying you, it can be tempting to treat the amount you receive as your VATable turnover. However, the VAT position may not be that straightforward.
For VAT purposes, you need to establish the value of the supply you have made. Your agency may collect payment from a brand on your behalf and deduct its commission before paying you. The agency fee may then represent a separate business cost rather than a reduction in your turnover.
The position can differ if the agency contracts with the brand in its own right. It may then engage you separately to provide content or other services. Your customer may therefore be the agency rather than the brand. Your VATable turnover would then reflect the value of the supply you make to the agency.
UK VAT registration is based on VAT taxable turnover, which is HMRC’s term for the turnover that counts towards the VAT registration threshold. The current threshold is £90,000. Using the wrong turnover figure could therefore affect when you need to register for VAT.
Before deciding which figure to include in your VATable turnover, establish who you are supplying and the role your management agency actually performs.
Creator agency fees and VAT: is your management company acting as agent?
When considering creator agency fees and VAT, you first need to establish whether the management company acts on your behalf or contracts with the brand itself.
Describing a business as an agency does not automatically make it your agent for VAT purposes. HMRC's guidance explains that an agent acts for another person, known as the principal. An agent can also create or affect the legal relationship between the principal and another party.
The contracts need to reflect what happens in practice. Who agrees the campaign with the brand? Who has responsibility for delivering it, and who is entitled to the payment? These factors can help establish the nature of the relationship.
Your agency might negotiate the campaign, invoice the brand and collect the payment. It may then deduct its commission before transferring the balance to you. The movement of the money alone does not establish whether the agency acted on your behalf or made its own supply to the brand.
What changes if your management company acts on your behalf?
A management company acting as your agent may negotiate commercial terms, arrange invoices and collect payment. Doing so does not necessarily make the agency the business supplying the brand.
If the brand buys your services and the agency collects payment on your behalf, the commission may represent a separate management service supplied to you. Looking only at the net payment received can therefore understate the value of your own supply.
HMRC's guidance on consideration explains that the value of a supply is generallyreflects the consideration received for making it. Deducting a separate business cost does not necessarily change that consideration.
For a creator, this can mean recording the gross campaign income and accounting for the management fee separately. Recording only the amount transferred by the agency may not reflect the underlying transaction.
The VAT treatment of the management fee also needs separate consideration. If your UK agency charges VAT on its services, you may be able to recover that VAT if you are VAT registered. The normal input tax conditions must also be met.
The question is not simply how much your agency paid you. You need to establish the value of your supply before deciding how much forms part of your VATable turnover.
Can you reclaim VAT charged on creator agency fees?
If your UK management agency is VAT registered, it will normally charge VAT on its commission or management fee when providing taxable services to you.
The VAT relates to the management service the agency provides to your business. It is separate from any VAT you may need to account for on the income you earn from brands.
If you are VAT registered, you can normally reclaim VAT charged on agency fees if you meet the usual input VAT conditions. If you are not VAT registered, you cannot normally reclaim it. The VAT then becomes part of the cost of using the agency.
For example, if an agency charges £2,000 commission plus £400 VAT, deducting £2,400 from a campaign payment does not reduce your VATable turnover automatically by the same amount.
The agency fee and the campaign income are two separate transactions. The supply you make determines how much of the campaign income forms part of your VATable turnover.
What if your management agency is based overseas?
Using an overseas management agency can create a UK VAT obligation even where no UK VAT appears on the agency's invoice
For most business-to-business services, the place of supply is where the business customer belongs. If you are a UK creator using an overseas management agency, you may need to account for UK VAT under the reverse charge.
Under the reverse charge, you account for VAT on the overseas service as though you had supplied it yourself. If you are VAT registered and can recover the VAT in full, you can normally reclaim the corresponding input VAT.
The rules can also affect you if you are not VAT registered. HMRC requires certain services received from overseas suppliers to count when considering whether a UK business must register for VAT.
A creator using an overseas management agency may therefore need to consider two separate VAT issues. These are the VATable turnover generated by your own supplies and overseas services that fall within the reverse charge registration rules.
Does an overseas brand alter the VAT position when you use an agency?
An overseas brand can complicate the VAT position where a management agency sits between you and the brand.
If your agency acts on your behalf and you supply services directly to an overseas business, the general B2B rule normally places the supply where your customer belongs. The income may therefore fall outside your UK VATable turnover.
The result can differ if a UK agency contracts with the overseas brand in its own right. If you supply your services to that agency, your customer may be in the UK despite the campaign being for an overseas brand.
HMRC confirms that supplies whose place of supply is outside the UK do not count towards VAT taxable turnover for registration purposes.
You cannot therefore determine the VAT treatment from the brand’s location alone. Where an agency is involved, first establish which business you are actually supplying.
How do agency fees work when a deal includes usage rights?
Management agencies increasingly negotiate more than the fee for creating and publishing content. A brand deal may also cover extended usage, paid advertising, exclusivity or other rights over your content.
Where these payments pass through an agency, you need to establish the agency’s role in that part of the deal. Is the agency collecting money on your behalf, or is it contracting for those rights in its own name?
You might license your content directly to a brand while your agency negotiates the licence and collects the payment. The agency’s commission may then need separate treatment from the income you receive for granting those rights.
Another agreement may operate differently. You should not assume that every payment passing through the same agency receives the same VAT treatment. The fact that the agency deducts the same percentage does not determine the answer.
We've examined more closely the underlying tax treatment of these rights in our guide to paying tax on UGC usage rights.
Why net agency payments may not match your VATable turnover
A creator agency statement will often show the value of a campaign, the commission deducted and the balance paid to you. This explains how the agency calculated your payment, but it does not establish your VATable turnover.
The arrangement behind the statement determines the answer. If the agency collects income on your behalf, its commission may be separate from the value of your supply.
If the agency contracts with the brand itself and purchases services from you, the amount due from the agency may instead represent your supply.
Creator agency fees and VAT: what UK creators need to get right
Creator agency fees can affect more than the amount you receive from a brand deal. Your VAT position depends on who you supply, the role your agency plays and, for international campaigns, where your customer belongs.
Working through an agency can also raise separate VAT questions. These include VAT on management fees, the reverse charge and payments for usage rights. An agency statement showing the commission deducted will not necessarily answer those questions.
If you use a creator or management agency and are unsure whether your income and agency fees have been treated correctly for VAT, we can review your management agreement, brand contracts and payment arrangements to establish the VAT position.
Please complete our Business Questionnaire if you would like to discuss how we can help.
For more guidance on VAT and tax for content creators, you can also browse our free eBooks and tax guides