VATF36232 - What to consider prior to determining whether to use an intervention: matters to consider when looking at particular types of taxable person or activity: box breaking and box consolidation: issues to consider: who made the purchase?
You should read VTAXPER35000 of the Taxable Person Guidance Manual.
The following deals with the purchase of mobile phones from a retailer.
It should be remembered that if the retailer, the box breaker or the box consolidator are not VAT registered then the box breaker or box consolidator can not reclaim any input tax as the supply will be outside the scope of VAT (VATF34000).
The purchase is made by an employee
Where the person making the purchase is a genuine employee of the box breaker or box consolidator, and the purchase has been made in the course or furtherance of the box breaker’s or box consolidator’s business and legitimately financed by the box breaker or box consolidator, then the box breaker or box consolidator can reclaim the input tax, subject to the normal rules on evidence for deduction etc.
You should make checks against direct tax records to ensure that the individual making the purchase was or is an employee of the box breaker or box consolidator. You should also make checks to discover whether the individual was or is claiming benefits and/or credits (VATF36236).
The purchase is made by an agent
It might be that the box breaker or box consolidator used friends, family members or an intermediary supplier to purchase the goods. In this case you will need to determine whether whoever purchased the goods acted as an agent and, if so, whether disclosed or undisclosed.
Disclosed agent
If the agents are true agents and stand back from the transaction, the supply of the mobile phones will be from the supplier to the box breaker or box consolidator. The box breaker or box consolidator will be able to recover input tax subject to the usual rules for input tax deduction and the agent, having never owned the goods, might take a commission for his services. If the agent is VAT registered he would not be entitled to input tax deduction or have to declare output tax on the supply of phones since the supply was never made to him or by him, and he would only need to declare VAT on his commission.
Undisclosed agent
If the agents are acting in their own name (an ‘undisclosed agent’) the supply of goods will be treated for VAT purposes as being made to them and by them (in accordance with Section 47(2A) of the VAT Act 1994). Therefore they will need to invoice the box breaker or box consolidator in their own name. If the agents are not VAT registered, they will not be able to deduct input tax on the goods they purchase, nor will they have to charge output tax on the goods they sell to the box breaker or box consolidator. Therefore the box breaker or box consolidator will not be charged VAT by the agent and will not be able to reclaim input tax. If the agents are VAT registered, they will recover VAT on the purchase of the goods and declare output tax on the sale of the goods to the box breaker or box consolidator, which should be on a proper VAT invoice (see VATF36233). The amount of input tax recovered will be equal to the output tax accounted for on the onward supply. The box breaker or box consolidator would be able to recover input tax, subject to the usual rules for input tax deduction.
The purchase is made by neither an employee nor an agent
If the person making the purchase was neither an employee nor an agent then the exact relationship between the box breaker or box consolidator and the purchaser will need to be established.