Do you charge UK VAT on a referral commission paid by a US company?

The short answer: usually outside the scope of UK VAT

Under the UK's general place-of-supply rule for business-to-business services, a service is supplied where the customer belongs. An introduction made for a US business and paid for by that business therefore usually has its place of supply in the US and sits outside the scope of UK VAT. You charge no UK VAT on it. The UK reverse charge does not come into it either, because that mechanism applies to services UK businesses receive from abroad, not to services they supply overseas.

The answer rests on three facts: the customer is in business, it belongs outside the UK, and no special rule overrides the general one. HMRC sets out the general rule and its exceptions in VAT Notice 741A, Place of supply of services, which is the document your accountant will check against your facts.

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting. This page does not link HMRC's notice, so read the current version on GOV.UK, or have your accountant confirm the place-of-supply position for your facts.

Why the general B2B rule usually applies to a referral reward

Work through the three conditions in order.

1. The customer is in business. The payer is a company acting in a business capacity, not a consumer. SourceX is a US business, run from Los Angeles with its legal address in Delaware.
2. The customer belongs outside the UK. For a company, that normally means the place where its business is established, unless a fixed establishment somewhere else is the one that most directly uses the service. If a UK branch of a foreign group contracted for or used your service, the answer can change.
3. No special rule overrides it. Separate rules exist for a limited set of services, such as those connected with land. An introduction to a data-licensing program does not normally fall into them, but your accountant should confirm the category for your own arrangement.

How it applies in common adviser situations

What to record for each reward

HMRC can ask how you reached the outside-the-scope treatment, so keep the evidence with your VAT records.

• Evidence the payer is a business: its legal name, address and the program terms that govern the arrangement
• Evidence of where it belongs, such as its US address on the agreement and payment documents
• Your invoice or the payer's remittance document, showing date, amount and currency
• The sterling value you recorded and the exchange rate method you used
• A short note of the VAT treatment and the reason, agreed with whoever prepares your return
• Bank records showing receipt and any transfer charges deducted on the way

Invoice wording, if you issue an invoice

Some programs pay against a partner invoice and others against their own statement; follow whatever the program terms ask for. If you do raise an invoice, a layout like this covers the VAT points:

Use whatever reference to the referred company the terms permit. Confidentiality matters more than detail on an invoice.

Recovering VAT on your own costs

Outside-the-scope supplies of a kind that would be taxable if made in the UK generally keep your right to recover input VAT on related costs. That matters if you incur costs connected with introductions, such as travel to meet a company owner, or if your business is partly exempt for other reasons. Ask your accountant to confirm the recovery position before you file the return that includes the first reward.

How the US paperwork sits alongside VAT

The US side asks a different question. A US payer usually wants a certificate showing that a non-US partner is not a US person. For a firm that is the W-8BEN-E, which the IRS describes in its overview of Form W-8BEN-E as documenting a foreign entity's status and beneficial ownership and any treaty claim, and which goes to the payer rather than to the IRS. It has no bearing on VAT. The step-by-step W-8BEN-E guide for consulting firms covers the form, and how US referral rewards are taxed for UK residents covers income tax.

The reward you are accounting for

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company, and the reward becomes payable only after the buyer pays and SourceX receives its fee. It is a share of SourceX's fee and never reduces the referred company's proceeds. The referral earnings calculator shows how the published formula works, and the guide to building a US company referral practice from an international network covers the wider set-up for UK advisers.

Questions to ask your accountant

• Is the payer's business establishment outside the UK, and do I hold enough evidence of it?
• Does any special place-of-supply rule apply to an introduction service like this one?
• How should outside-the-scope income appear in my VAT records and on my return?
• Does this income affect my registration threshold calculation or any partial exemption method?
• If the referred company later hires me for UK work, how is that separate supply treated?

Next step

UK advisers with contacts at US companies of 50+ full-time employees at peak (contractors excluded) can register as a partner now. Open the VAT record for the first reward before any payment arrives, so the evidence is in place when the return is due.