How to post affiliate links & discount codes on Instagram
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How VAT works on affiliate commissions
Handling VAT (Value Added Tax) on affiliate commissions can get incredibly complex, but we’re going to break down how to deal with VAT when it comes to pricing, commissions and payouts in the affiliate industry.
So, how does VAT work on affiliate commission?
Handling VAT (Value Added Tax) on affiliate commissions can get incredibly complex, but we’re going to break down how to deal with VAT when it comes to pricing, commissions and payouts in the affiliate industry. You can skip to the specific questions we answer through the quick-links below:
- Is VAT applicable on affiliate commissions?
- Who pays the VAT on affiliate commissions?
- Examples of VAT on affiliate commissions
- Does Avelon make commission payments for me?
- VAT on affiliate commissions in the UK
- VAT on affiliate commission in the European Union
- VAT on affiliate commissions in the US, Australia, Canada etc
- Do I have to pay VAT on affiliate commissions?
- Can I exclude VAT from the sale price?
- What do affiliates need to provide?
- Self-billing invoices explained
VAT is automatically added to the price of goods and services within the UK when a business exceeds £85,000.00 in turnover. When a business is classed as business to consumer (B2C), then VAT is shown within the price of the product whilst when a business sells to another business (B2B), then VAT is shown as +VAT and is not included within the price of the product.
When it comes to the affiliate industry, VAT can muddy the water and cause confusion for affiliates. This is due to platforms giving merchants the option to include or exclude VAT from both the total sale price and the payable commission.
To make our platform as user friendly and as simple as possible, Avelon does not provide the option to either include or exclude VAT. We simply include VAT in the total price – meaning brands need to adjust how much commission they are paying to include VAT – and then manage all VAT payments on behalf of both the merchant and the affiliate.
Please be aware, this article explains how our affiliate platform works and how we treat VAT payments across the world. VAT guidance is purely directed towards our platform.
Is VAT applicable on affiliate commissions?
Yes, VAT applies to all affiliate commissions as they are considered a supply of services for tax purposes. The rules do however change when it comes to cross-border payments and depend on several factors:
- The location of the affiliate
- The location of the merchant
- The location of the network
- Whether the affiliate is VAT-registered
Due to Avelon handling all payments on behalf of merchants to affiliates, merchants must also take into account that Avelon is based inside the United Kingdom.
As the UK works on a flat 20% VAT rate for a supply of services for tax purposes, Avelon charges a 20% VAT on commissions and subscriptions paid through the platform.
As the UK works on a flat 20% VAT rate for a supply of services for tax purposes, Avelon charges a 20% VAT on commissions and subscriptions paid through the platform.
Who pays the VAT?
Who pays the VAT depends on a variety of factors, but most commonly it is both the affiliate (commission earner) if they are VAT-registered and the merchant (commission payer). Any payments of VAT on affiliate commissions must be paid to the appropriate tax offices in the affiliates location.
This is almost always the case if the merchant is paying the affiliate directly for their earned commissions, but as Avelon handles all payments, it both makes things more simple for the merchant and affiliate, but more complex for Avelon.
Examples of VAT on affiliate commissions
To make things clearer, here are some straightforward examples of how VAT is applied to affiliate commissions on Avelon.
Example 1 – UK merchant, UK affiliate (VAT-registered)
A sale is made for £100.00 (inc. VAT). The brand has set a 10% commission rate.
- Payable commission: £10.00
- VAT on commission (20%): £2.00
- Total charged to merchant: £12.00
- Amount paid to affiliate: £10.00 + £2.00 VAT = £12.00
Example 2 – UK merchant, UK affiliate (not VAT-registered)
A sale is made for £100.00 (inc. VAT). The brand has set a 10% commission rate.
- Payable commission: £10.00
- VAT on commission (20%): £2.00
- Total charged to merchant: £12.00
- Amount paid to affiliate: £10.00 (VAT is collected by Avelon and paid to HMRC)
Example 3 – EU merchant, UK affiliate (VAT-registered)
A sale is made for £100.00 (inc. VAT). The brand has set a 10% commission rate.
- Payable commission: £10.00
- VAT charged to merchant: £0.00 (Reverse Charge mechanism applies)
- Amount paid to affiliate: £10.00 + VAT paid by Avelon on behalf of the merchant
Example 4 – Non-UK/EU merchant, UK affiliate (VAT-registered)
A sale is made for £100.00 (inc. VAT). The brand has set a 10% commission rate.
- Payable commission: £10.00
- VAT charged to merchant: £0.00 (VAT not applicable)
- Amount paid to affiliate: £10.00 + VAT paid by Avelon on behalf of the merchant
Avelon manages all VAT obligations for you
Due to Avelon making all payments on your behalf, you do not need to worry about whether an affiliate is VAT registered or not. Avelon is VAT registered in the United Kingdom and therefore all charges are based on our VAT registration throughout the UK and Europe.
VAT is automatically added to your commission invoice each month, in one way or another. We’ll explain these ways below.
1. If your company is registered in the United Kingdom
If your company is based in the United Kingdom, then you will be charged the due commission + VAT (20%). This is because Avelon is VAT registered in the United Kingdom and therefore affiliate commissions are considered a supply of services for tax purposes.
The required VAT amounts, depending on whether an affiliate is VAT registered, is then calculated and then added on top of the payable commissions every month. Avelon also supplies self-billing invoicing for all affiliates.
If the affiliate is not VAT-registered, then VAT will still be charged on top of the affiliate commissions but the VAT will not be paid to the affiliate and instead, passed to the HMRC VAT office every quarter. This is because Avelon makes the payment on your behalf and charges you the commission each month.
2. If your company is registered in the European Union
If your company is based in the European Union, then the Reverse Charge mechanism applies. This means Avelon does not charge VAT but states Reverse Charge on the invoice. Merchants must supply their tax/VAT numbers for the Reverse Charge Mechanism to apply.
If the affiliate is VAT-registered in the United Kingdom but you are registered in the European Union, Avelon will pay the VAT due to the affiliate on your behalf.
3. If your company is registered outside of the UK & European Union
If your company is registered outside of the UK and European Union, then VAT is non-applicable and will not be charged on commissions.
If the affiliate is VAT-registered in the United Kingdom but your company is not liable to pay VAT, i.e you are based outside of the United Kingdom and the European Union, then Avelon will pay the VAT due to the affiliate on your behalf.
Do I have to pay VAT on affiliate commissions?
In short:
✅ YES if your company is registered in the United Kingdom.
❌ NO if your company is based in the European Union. VAT is subject to the Reverse Charge mechanism.
❌ NO if your company is based outside of these areas.
As per the above information:
- If you are within the United Kingdom you will be charged for VAT
- If you are in the European Union, you will not be charged for VAT and it will be applicable on a Reverse Charge Mechanism
- If you are outside of these areas, VAT does not apply but local tax rules will
Can I exclude VAT from the sale price?
The way we interact with the price of goods and services with our merchants comes down to the information that is supplied to us through your eCommerce platform.
Avelon works on an ‘inc VAT’ pricing model which means we take the price you (your eCommerce platform) give us for the product, calculate the commission due and then charge you for that commission + VAT. Whilst some affiliate platforms work on an ‘ex VAT’ pricing model, we find it simpler for all brands and for reporting to work on an ‘inc VAT’ model.
When you, the brand, set the commission for the product inside Avelon, we are assuming you are calculating this commission to include your VAT costs. Avelon takes no responsibility on how you set up your commission or how you calculate your payouts.
If you would like to set up product pricing to exclude VAT, it is down to you to report this within your eCommerce platform.
What do affiliates need to provide?
To ensure affiliates are paid correctly and on time, there are a few things Avelon may need from you depending on your location and VAT registration status.
If you are VAT-registered in the United Kingdom, you will need to provide your VAT registration number within your Avelon affiliate profile. This allows Avelon to issue correct self-billing invoices and ensure the appropriate VAT is applied to your commissions.
If you are based in the European Union and VAT-registered, you will need to supply your VAT or tax identification number so that the Reverse Charge mechanism can be applied correctly.
If you are not VAT-registered, you do not need to provide a VAT number. Avelon will still process your commissions correctly – VAT will be charged to the merchant on your behalf but will not be passed on to you.
Self-billing invoices on Avelon
Avelon operates a self-billing arrangement for all affiliates. This means that rather than you needing to raise an invoice to the merchant or to Avelon each month, Avelon will generate the invoice on your behalf automatically.
Each month, once your commissions have been calculated and approved, a self-billing invoice will be created and made available within your Avelon account. This invoice will detail the commissions earned, the VAT applied (if applicable), and the total amount due to be paid to you.
You do not need to take any action for self-billing invoices to be generated. However, you should ensure your account details, business name, business address and VAT number (if applicable) are kept up to date so that the invoices are accurate.
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