Contract changes don’t help All Answers on VAT

All Answers Limited (AAL) operated websites where students could buy essays, dissertations or pieces of coursework to be written for them. Once the student ordered an essay, the assignment was advertised on a separate portal on which writers, usually a lecturer, teacher or PhD student, could bid to take on the work. The essays were offered as model answers to help inspire the student when writing their own work. However, it is feasible that students might try to pass off the text as their own. 

In 2020 the courts found that AAL was providing its essay-writing service to students and not, as it claimed, merely acting as an agent bringing together a writer and a student. In an important decision for many gig economy businesses, the tax tribunal has recently considered whether a new contract drawn up by AAL might have changed the VAT treatment. 

All Answers model

The gig economy is founded on the principle that online peer-to-peer trading via a shared online platform benefited consumers and an army of gig workers looking for additional income. AAL was one such platform offering students the opportunity to pay for an essay produced by a freelance writer vetted by AAL. The identities of the student and the writer were not disclosed to each other. 

All Answers v HMRC round 1 

In conducting this business, AAL took the view it was acting as an agent. It accounted for VAT to HMRC on the charge to the writer for acting as agent but claimed no VAT was due on what AAL regarded as the fee payable by the student to the writer. HMRC disagreed and claimed that AAL bought in the services of the writer and provided the essay service to the student itself. 

Unfortunately for AAL, the Upper Tribunal agreed with HMRC, finding that both the contract and the commercial reality of the arrangement meant that AAL was providing a writing service to the students. AAL was obliged to pay VAT on the total sum paid by the students using its site. However, the court noted that ‘If either the terms of the contracts, or considerations of economic reality, had been different we might have reached a different conclusion.’. 

All Answers v HMRC round 2

Shortly after the Upper Tribunal’s decision in 2020, AAL presented HMRC with a new contract which it claimed meant that AAL was now acting as agent for VAT purposes. AAL claimed that there were two changes that supported its position. 

First, the intellectual property created by the writer no longer passed to AAL, instead the writer retained these rights; the student paid for a restricted right over the work. Second, a clause to the contract between the writers and AAL was added which stated that if the writer’s bid for a project was accepted then a contract was created between the writer and the student.

The VAT Answer

The tribunal found that the contractual changes did not affect AAL’s VAT position; AAL was still providing services to students and this was reflected by both the contract and the commercial reality, which was largely unchanged. The tribunal also added that, even if the wording of the contract had supported an agency business model, it still would have found that the commercial and economic reality of the arrangements was that AAL had supplied the service itself as a principal for VAT purposes. This meant that AAL owed HMRC VAT on the full value of the fees paid by the student, not just on the net fees it retained after paying the writers. 

Finally, it’s worth noting that even if AAL had managed to make sufficient changes to its business to convince the court that it was acting as agent, the fact that the student did not know the identity of the writer of the essay could allow HMRC to invoke other legal powers to ensure VAT was accounted for on the full value of the service. Other gig economy platform operators who account for VAT on their retained fee should only review their contracts and practical arrangements to check their robustness against potential challenges from HMRC.