Are royalties VATable?

[Brown and Boris]

My limited Co (VAT registered) have just licensed a product to another VAT registered company.

The licensee has agreed to pay me a royalty on sales, and for the first three years, I am guaranteed a minimum royalty. The royalty is based on sales after commissions and VAT have been deducted.

It has just occurred to me; does the figure they pay me include VAT? When I get my first £1K, is that really £869 and £131 to Mr Darling? If so I may suddenly decide that I own the product and get the contracts redone in my name.

[Eric Mc]

Yes.

VAT is due. The figure you agreed should have been the VAT Exclusive amount.

[sgrimshaw]

They should calculate the Royalty in accordance with the method agreed then apply VAT on top.

So if Royalty = £1000, then £150 VAT should be added.

[Brown and Boris]

I think the contract says the royalties are after VAT has been deducted. I shal invpice for the full amount plus VAT and see what happens.

Editted: just read the contract and there is a section on VAT saying everything is excluding VAT and I have to give them my VAT number of request. Phew!

Edited by Brown and Boris on Friday 20th February 19:20

[thebullettrain]

Your VAT clause is well drafted otherwise the default positon, as Eric, was alluding too, is that the price is VAT inclusive.