Sales Teams and Finance
How do sales agents and commission earners invoice for commission income?
Sales agents earning commission on sales must issue VAT invoices for their commission income if VAT-registered. Commission invoices differ from goods invoices: the supply is the agent's sales service, not the goods being sold. The commission amount is typically a percentage of the order value or a fixed amount per transaction. VAT applies to the commission at the applicable rate for services; no VAT is charged on the underlying sale value.
How is VAT applied to commission invoices?
Commission invoice VAT treatment:
- Taxable supply: Agent's commission service is a taxable B2B supply at the standard VAT rate
- Amount: VAT applies to the commission amount only, not the underlying sale value
- Invoice content: Must identify the commission as the supply; reference the underlying sales or period
- Timing: Invoice issued when commission is earned (typically on the underlying sale completing)
- Credit commission: Where commission is reversed (e.g., due to customer return), a credit note is required
- Sub-agent: If agent sub-contracts, the sub-agent's commission to the main agent is also a taxable service
Frequently Asked Questions
- Can commission income be invoiced on a self-billed basis?
- Yes, self-billing is commonly used for commission payments where the principal knows the commission amount and issues a self-billed invoice to the agent alongside or instead of waiting for the agent's invoice. Self-billing for commissions requires the same formal agreement as for goods: the agent agrees not to issue their own invoice, and the self-billed invoice is structured as if issued by the agent. Self-billed commission invoices must show the agent's VAT number and the appropriate VAT on the commission amount.
- How are trailing commissions and performance bonuses invoiced?
- Trailing commissions paid periodically after the initial sale (e.g., annual renewal commissions on insurance) are invoiced at each payment event. Each trailing commission invoice references the original policy or contract generating the commission. Year-end performance bonuses based on total sales volume must be invoiced when the bonus is earned and the amount is determined. Both trail commissions and bonuses are taxable service income requiring VAT invoices from VAT-registered agents.