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• # 114301
• Fri 09 Dec 2016 11:57 AM

Hi All

This query has arisen through a friend's situation and not a client but it is confusing me somewhat and so I am hoping to seek some expert knowledge !

My friend is self employed, not registered for VAT.

She receives work through an agency who in return for these referrals she then pays 10% of her monthly earnings to as a royalty. 

She has just told me that she pays 20% VAT on this royalty payment to the agent. So if she earns £1000 in a month from referrals she pays the agent £100 + VAT =  £120

Is this really right? In effect she is paying the agent 12% in royalties and he is charging her VAT on her earnings?

Does anyone have any idea if this is legal? It seems so wrong to me and I cannot find anything to support him charging VAT on this receipt, or have I got it wrong and this is completely normal practice?

Just don't like seeing a friend ripped off as she doesn't earn a lot.

Any feedback gratefully received!

Karen

• Karen
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• # 114317
• Wed 14 Dec 2016 10:59 AM

I've little experience surrounding royalties but surely as a taxable supply it's perfectly normal to charge VAT.

I'd guess it all comes down to the agreement in place, if the 10% is supposed to include the VAT then it isn't correct but if it states the 10% is before VAT then it is and the only way around it is to become VAT registered herself.

• Carol

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