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Commission is earned when someone facilitates the arranging of supplies between two other parties. Someone receiving commission is often referred to as an agent, and commission can be described as an agency fee or sometimes as a referrer or broker’s fee.

However commission is described, the VAT treatment needs to be established because depending on the nature of the transaction, commission can be standard rated, exempt from VAT or outside the scope of UK VAT.

When is VAT charged on commission?

In most circumstances, commission is subject to VAT at the standard rate (currently 20%). For example, VAT is chargeable on commission received by a buying or selling agent as a result of a sale/purchase of goods in the UK.

The receiver of the commission will be required to register for VAT if their income exceeds the VAT registration threshold, which is currently £85,000, in a 12-month period (£90,000 from 1 April 2024).

The VAT treatment of commission received in connection with services is not always straight forward and although the starting point should always be that VAT is chargeable it is important to be aware of the exceptions to this.

When is commission exempt from VAT?

Commission received in connection with services which are exempt from VAT, for example, financial services and insurance services can sometimes also qualify for VAT exemption. The VAT treatment depends on what has been supplied in return for the commission.

Financial services

Commission received by an intermediary in connection with financial services will be exempt from VAT if the role of the intermediary involves the following:

  • bringing together a person seeking a financial service with a person who provides a financial service.
  • acting as an intermediary between two or more parties to a contract.
  • undertaking work in preparation for the completion of a contract for financial services (whether or not the contract is completed).

Work of a more general nature such as administrative or clerical work including the completion of application forms or the referral of a customer to a financial services provider is not exempt from VAT despite the underlying transaction being an exempt financial service. Commission received for these type of services is standard rated.

Insurance services

The commission received in connection with insurance-related services is exempt from VAT when the receiver is acting as an intermediary. This means acting somewhere in the chain of supply of a contract of insurance.

The intermediary does not have to have direct contact with the insurer or the insured party (there can be more than one intermediary in a chain). However, at one end of the chain there must be a business which has direct contact with the insured party (or potential insured party) and at the other end a business which has direct contact with the insurer.

When is commission outside the scope of UK VAT?

Commission received from a business customer located outside the UK is outside the scope of UK VAT. It is a business-to-business (B2B) transaction, and the place of supply is where the overseas business is located.

Commission received from a private customer (B2C) is subject to UK VAT if the underlying supply takes place in the UK. However, if the underlying supply takes place outside the UK, the receiver of the commission may have to register for VAT in the country where the underlying supply takes place and charge VAT in that country. For example, the sale of a painting in France on behalf of a private individual would require French VAT to be charged on the commission income.


Although, in most circumstances, commission income is subject to VAT at the standard rate, there are exceptions to this when the underlying transaction to which the commission relates is an exempt supply or the underlying transaction takes place outside the UK or is invoiced to a business customer located outside the UK.

Professional advice should be sought if there is any doubt as to the VAT treatment of commission income.



Lynne Gill

My area of expertise is land and property transactions but I have extensive knowledge of both domestic and international VAT and I love complex VAT queries. I have an Honours degree in Business Studies and a VAT legal and technical qualification from the Institute of Indirect Taxation.

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