An essay writing provider has lost a First Tier Tribunal (FTT) appeal in relation to whether its services were required to account for VAT
The appellant, All Answers Limited, made an appeal against a series of VAT assessments issued by HMRC for the periods 12/16 to 03/20 totalling £419,559.
All Answers ran an internet-based business through which customers could order academic work which were written by third-party writers, who were not employed by the company.
The key question in this case was whether the company was acting as an agent of the third-party writers and therefore only obliged to account for VAT on its share of the customer’s payment.
If acting as principal, it was required to account for VAT on the full value of the payment made by the customer.
All Answers generally retained around two-thirds of that fee with the writer obtaining the remaining one-third. For example, if a customer paid £240 for a piece of work, and ignored VAT, the business would retain £160 of that and will pay £80 to the writer.
These proceedings concerned the VAT treatment of the above transactions. HMRC submitted that All Answers made a single standard-rated supply of the academic work to a customer and should have accounted to HMRC for VAT on the full £240 paid by the customer.
According to HMRC, when All Answers paid the writer £80, it was paying the writer consideration for a separate supply made to the writer to the appeal.
However, since writers tend not to be registered for VAT purposes, All Answers was not entitled to credit for any input tax incurred in respect of the separate supply.
All Answers argued that it was acting as a writer’s agent about the supply of the work. Therefore, the supply of the work is made by the writer to the customer and the business is not obliged to account for VAT.
Previous appeals had been made by All Answers against other VAT assessments made on the same basis, both at the FTT and the Upper Tribunal (UT) – both dismissed, accordingly.
The UT determined that All Answers, and not the writers, made a supply of the academic work so as to become subject to an obligation to account for VAT. The company now returned to the FTT having made some changes to its contractual terms.
In September 2020, All Answers provided HMRC with the revised contracts which they considered to be consistent with the agency relationship they understood they held with the writer and the customer.
HMRC did not accept this altered the position that All Answers was a principal and informed them that VAT should be accounted for in accordance with the UT decision.
The business contended that the UT decision was based on the contracts in place before October 2016 and that the application of that decision was incorrect concerning VAT periods ending after the changes were made, namely from 12/16 onwards.
HMRC issued All Answers with VAT assessments for the period 12/16 in the amount of £31,422, for the periods 12/17 to 06/19 in the amount of £286,541 and the periods 09/19 to 03/20 in the amount of £101,596.
Appearing at the FTT, HMRC argued that there had not been any material changes to the business model from that which was operated throughout the periods considered in the UT decision and that the ‘core’ obligations within the updated contracts remained binding upon All Answers alone.
All Answers submitted that the changes to the contracts included updates that impacted the ‘core’ obligations, the main impact being the obligation to provide the work to the customer.
The FTT concluded that the contractual changes did not alter the core obligations to deliver the product. These obligations were imposed on All Answers alone.
Therefore, the reasoning of the UT continued to apply. All Answers were still required to account for VAT on the full payment received from the customer.
Judge Kim Sukul said: ‘We do not consider the updated contract terms, whereby the copyright remains with the writer, provides a sufficient basis to depart from the conclusion reached in the UT decision that the core obligations to deliver the academic work to the requisite standard and by the applicable deadline was binding on All Answers only.
‘We, therefore, accept HMRC’s submission that the contractual changes do not alter the finding that the core obligations to deliver a product, in the appropriate timescale, to the requisite standard, remain imposed upon All Answers alone and, as such, the reasoning of the UT decision continues to apply to the updated contracts in force during the relevant periods under appeal.’