A Guide to VAT on commission payments in the UK

This guide covers common errors, filing under Making Tax Digital, when to charge VAT on commission, and how to recover VAT on commission expenses.

What is VAT on commission?

• Commission is the amount an agent or middleman earns for facilitating a deal or providing a service. In most cases, VAT-registered businesses in the UK are required to charge VAT on commissions at 20%.
• For example, an estate agent charging £5,000 commission would add £1,000 VAT, bringing the total to £6,000. VAT must be shown separately on invoices.
• Businesses paying a commission may also reclaim VAT on expenses if the supplier is VAT-registered and the cost relates to taxable business activities.

When to charge VAT on commission

VAT rules differ depending on the transaction and parties involved:

Domestic UK commission VAT transactions

Agents and intermediaries must charge VAT on their commissions if they are registered for VAT. This applies to many sectors, including:

• Property and estate agents
• Recruitment agencies
• Introducers and sales agents for goods or non-exempt services
• Freelancers and consultants providing services in the UK

Overseas clients: when UK VAT applies to commission

When your client or principal is outside the UK, the place of supply rules decide whether you charge UK VAT (VAT Notice 741A). Work through these in order, because the first one overrides the others.

1. Commission on property: the land decides, not the client

Commission for arranging the sale or letting of land or property is a land-related service. The place of supply is where the land is. It makes no difference where your client belongs or whether they are in business.

So a UK estate agent or letting agent earning commission on a UK property charges 20% UK VAT, even when the client is an overseas company. Commission on a property abroad is outside the scope of UK VAT, whoever the client is. Managing a property investment portfolio is only indirectly land-related and follows the general rules below instead.

2. Other commission to an overseas business client

For commission that is not land-related, the general business-to-business rule applies: the supply is made where your customer belongs. A UK recruiter, introducer or sales agent invoicing an overseas business does not charge UK VAT. The supply is outside the scope of UK VAT and your client accounts for it under their own country's rules.

Keep evidence that the customer is in business and belongs outside the UK. Their VAT or equivalent tax registration number is the strongest evidence; a certificate from their tax authority or commercial documents showing the nature of their business will also do. If the customer cannot show they are in business, treat the supply as business-to-consumer. The consumer rules then decide, and they can put the place of supply back in the UK.

3. Commission to a private individual abroad

For intermediary services supplied to a non-business customer, the place of supply is where the underlying arranged supply is made. Follow the thing you arranged rather than the customer: arranging something land-related puts the supply where the land is, and arranging a supply that takes place abroad puts your commission abroad too.

4. Commission you pay to an overseas agent or affiliate network

Here the reverse charge usually applies, and you account for the VAT yourself. It applies where the place of supply is the UK, the supplier belongs outside the UK, you belong in the UK and the service is not exempt. On your VAT return:

• Box 1: the VAT due on the fee
• Box 4: the same amount reclaimed, if the cost relates to your taxable activities
• Box 6: the net value of the fee
• Box 7: the net value of the fee

For a fully taxable business the VAT effect is nil, but it still has to appear on the return. Leaving it off is one of the most common commission errors.

Outside the scope still goes on the return

Commission that is outside the scope of UK VAT is not invisible. The net value still goes in Box 6 as part of your total sales, alongside zero-rated and exempt supplies. No VAT is charged, but the sale is still reported.

Exempt commissions

Some commissions are exempt from VAT, including:

• Financial services, loans, and insurance
• Insurance brokers and qualifying financial intermediary services (for example, arranging loans)

If a commission is exempt, VAT is not charged, and you may not be able to reclaim all the VAT on related costs (partial exemption).

How to reclaim VAT on commission expenses

Businesses paying commission can reclaim VAT if:

• The commission relates to taxable business activities
• The supplier is VAT registered in the UK, or you have accounted for the reverse charge on an overseas supplier’s fee
• VAT is shown separately on the invoice
• Example: An agent receives £1,000 from a recruitment agency plus £200 VAT. The company can claim the £200 VAT if it is registered for VAT
• Reclaiming VAT  can improve cash flow. Keeping accurate records of all invoices, payments, and VAT charges is essential.

Common mistakes with commission VAT

Errors in handling VAT on commission are common. These include:

• Treating UK property commission as outside the scope because the client is overseas: UK VAT at 20% is still due
• Missing the reverse charge on fees from overseas agents and affiliate networks
• Not charging VAT on domestic commissions
• Considering foreign commissions to be exempt rather than outside the scope
• Not remembering to claim VAT on commission costs
• Insufficient records or manual processes that increase the chances of errors in VAT filing

Avoiding these errors is essential to prevent penalties and ensure accurate VAT returns. If you need help managing VAT on commission or want guidance on avoiding errors, contact our team today.

MTD VAT Filing on commission

Since April 2022, all VAT-registered businesses in the UK have been required to file their VAT returns digitally under the Making Tax Digital (MTD) initiative.
MTD requires businesses to:

• Keep digital records of VAT
• Submit VAT returns using compatible software
• Ensure VAT on commission is correctly reported

Many businesses still calculate VAT on commission in spreadsheets. VAT bridging software enables spreadsheet data to be submitted directly to HMRC, thereby reducing errors and simplifying the filing process.

Managing VAT on commissions for various business structures

Agents acting on behalf of principals

• If a business uses a disclosed agent (one acting in the client’s name), VAT is calculated on the fee the agent earns, not on the total amount of the deal. An agent acting in its own name is treated as buying and selling, so VAT applies to the full value.
• Example: An estate agent sells a property for £200,000 and earns £5,000 commission. VAT is applied to the £5,000 commission, not the £200,000 sale.

Principal businesses paying VAT on commission

Businesses may claim VAT on commissions paid to consultants or agents, provided the expense is related to taxable activities.

Entrepreneurs and independent contractors

Freelancers who receive commission and are VAT-registered must account for VAT. They should maintain accurate records for their return and issue invoices that clearly show the VAT amount.

Best practices for VAT on commission

• Check if VAT applies depending on the type of commission and the client's location
• Keep clear invoices that show VAT and commission separately
• Use digital records to comply with MTD
• Reconcile all commission payments before filing VAT returns
• Follow HMRC guidance on place of supply and exempt services to avoid mistakes

Bridging software

Businesses can file VAT returns online using MTD-compatible bridging software. It helps send records directly to HMRC and ensures MTD compliance. The software does not calculate VAT but simplifies the submission process.

Conclusion

• Charge VAT correctly on UK commissions
• Follow the place of supply rules for overseas clients
• Reclaim VAT only when allowed
• Keep accurate digital records

Submit VAT returns online under MTD reduces mistakes and ensures compliance without extra steps. See plans and pricing Start filing for £5 a month

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Frequently asked questions

Based on HMRC VAT Notices 700 (section 22), 700/12, 700/22, 741A, 701/36 and 701/49. Checked October 2026.

Do I charge VAT on commission?

Yes, if you are VAT registered and the commission is for a taxable service, usually at 20%. If you are not VAT registered, you do not charge VAT at all. The main exceptions are commission for arranging insurance or finance, which is exempt, and commission from a business client outside the UK, which is usually outside the scope of UK VAT unless it relates to UK property. Check your commission in four questions.

Is VAT charged on the commission or the whole deal value?

On your commission only, if you act as a disclosed agent arranging the deal in your client's name. Earn £5,000 commission on a £200,000 property sale and you charge VAT on the £5,000: £1,000 VAT, £6,000 in total. The sale itself is a separate supply between the buyer and the seller. If you act in your own name (an undisclosed agent), you are treated as buying and selling, so VAT applies to the full value. Check yours with the decider.

How do you calculate VAT on commission?

Multiply the commission before VAT by 20%. For example, £5,000 commission × 20% = £1,000 VAT, so you invoice £6,000. To find the VAT inside a commission that already includes VAT, divide by 6: £6,000 ÷ 6 = £1,000. Show the net commission, the VAT and the total as separate lines on your invoice. Work out yours with the decider.

Does commission count towards the £90,000 VAT threshold?

Yes. Taxable commission is part of your taxable turnover, so if it takes you over £90,000 in any rolling 12 months you must register for VAT. As a disclosed agent only your commission counts, not the value of the deals you arrange. Exempt commission, such as commission for arranging insurance or finance, does not count. Until you are registered, you cannot charge VAT. Get the commission invoice wording pack.

Do you charge VAT on commission to an overseas client?

It depends on what you arranged. Commission for arranging the sale or letting of UK property is a land-related service, so UK VAT at 20% applies even when the client is an overseas business. Other commission from an overseas business client is outside the scope of UK VAT. For an overseas individual, VAT follows where the deal you arranged takes place. Keep evidence of where your client belongs and that they are in business (VAT Notice 741A). Get the overseas invoice wording.

Do I pay VAT on commission from an overseas agent or affiliate network?

Usually yes, through the reverse charge: you account for the VAT yourself instead of the supplier charging it. Put the VAT on the fee in Box 1, reclaim the same amount in Box 4 if the cost relates to your taxable business, and include the net fee in Box 6 and Box 7. For a fully taxable business the net cost is nil, but it must still appear on your VAT return. See how Swift VAT Pro files your return.

Is insurance or finance commission exempt from VAT?

Usually, yes, if you genuinely act as an intermediary. For insurance you must act between the insurer and the customer. For loans, mortgages and other finance you must bring the parties together and do the preparatory work of arranging the deal. Advice-only work, valuations, market research and marketing are taxable at 20%. Making exempt supplies can also limit how much VAT you reclaim on your costs (partial exemption). Not sure which applies? Talk to our UK team.

Do estate agents charge VAT on commission?

Yes. VAT-registered estate and letting agents charge 20% on their fee, not on the sale price or the rent. For example, a £5,000 fee on a £200,000 sale carries £1,000 VAT. Because the service relates to UK property, the 20% applies even if the seller or landlord lives abroad or is an overseas company. Check a fee with the decider.

Can I reclaim VAT on commission I pay?

Yes, if the commission relates to your taxable business and you hold a valid VAT invoice showing the VAT separately. A recruitment fee for staff working in your taxable trade, for example, is reclaimable in full in Box 4. VAT on commission linked to exempt activities is not reclaimable, and if you have both taxable and exempt income, the partial exemption rules decide how much you recover. See what a valid commission invoice must show.

What are the most common commission VAT mistakes?

The costliest is treating commission on UK property as outside the scope because the client is overseas: UK VAT at 20% is still due. The others are charging VAT on the deal value instead of the commission, missing the reverse charge on fees from overseas agents and affiliate networks, mixing up exempt and outside-the-scope commission, and not showing the commission and the VAT as separate lines on the invoice. Check your commission in four questions.

Where does commission go on my VAT return?

UK commission at 20%: the VAT in Box 1 and the net commission in Box 6. Commission from overseas business clients (outside the scope of UK VAT) and exempt insurance or finance commission: Box 6 only, with nothing in Box 1. VAT on commission you pay goes in Box 4 if you can reclaim it. Reverse-charge fees from overseas agents: the VAT in Box 1 and Box 4, the net fee in Box 6 and Box 7. See how Swift VAT Pro files your return.

Do I need accounting software to file VAT on commission?

You need Making Tax Digital (MTD) compatible software, but not necessarily full accounting software. Since 1 April 2022 every VAT-registered business must keep digital records and file through MTD-compatible software, whatever its turnover. A spreadsheet is allowed as long as it is digitally linked to the software that submits the return, which is what bridging software does. Swift VAT Pro does this from £5 a month. Start a 7-day free trial, no card needed.