In deciding where in a supply chain VAT liabilities come home to roost, tax tribunals look to the economic reality of commercial relationships. That was certainly so in a case of critical importance to the burgeoning online trade in academic papers.

The case concerned a largely internet-based company through which customers obtained academic works such as essays, dissertations or pieces of coursework. The works were written on an individual basis and tended to be sourced from teachers, lecturers or PhD students.

Customers' fees were shared between the company and the writers. If a customer paid, say, £240 for a work, the company would typically retain £160 before paying the balance to the writer. The writers were not employed by the company and their identities were not disclosed to customers, or vice versa.

The company argued that it acted as agent for the writers and that the taxable supply of the works was from the writers to the customers. It was, therefore, not liable to pay VAT on the sums that the writers received. HM Revenue and Customs (HMRC) took the contrary view that the company was engaged in making individual, standard-rated supplies directly to the customers and was thus liable to VAT on the entirety of their fees.

After HMRC's arguments prevailed in previous proceedings, the company revised its contractual terms in a manner which it considered to be consistent with an agency relationship. HMRC, however, did not accept that the revisions changed the position and raised VAT assessments against the company totalling over £400,000.

In dismissing the company's challenge to those assessments, the First-tier Tribunal (FTT) noted that, under the revised contracts, copyright to the works remained with their writers. However, the core legal obligations to deliver the works to the customers to a requisite standard and by set deadlines remained binding on the company alone.

The contractual revisions did not, the FTT found, alter the commercial and economic reality of the arrangements. The company, not the writers, delivered the works to the customers. The company alone assumed responsibility to provide the customers with a limited right to use works of suitable quality within a stipulated timescale.