VAT for Interior Designers: What to do when you buy furniture for clients

If you’re an interior design studio that sources furniture and furnishings for clients, VAT can get messy fast. The key question in almost every scenario is: are you acting as principal (buying and reselling the goods) or as agent (arranging the purchase on the client’s behalf)? That single decision drives whether you charge VAT, how much counts towards the VAT registration threshold, and what shows up as your income.

Below are the three common scenarios — explained in plain English — with simple, workable ways to set things up correctly.

1) You’re not VAT registered yet. Do furniture recharges count towards the £90k threshold — and can you avoid it?

Short answer: Yes, if you buy goods and resell them to your client (you’re the principal), the full selling price of those goods counts towards your taxable turnover for the VAT registration threshold (currently £90,000 in any rolling 12 months).

How to avoid tipping over the threshold unnecessarily: Use a proper agency/disbursement set-up so that the client is the one buying the goods and you’re just arranging the purchase. If you meet all the HMRC disbursement conditions (e.g. client receives/uses the goods, it’s the client’s legal obligation to pay, you pass on the exact amount with no markup, and you itemise the disbursement separately) then that pass-through amount is outside the scope of your VAT and does not form part of your taxable turnover.

What to put in place (practical steps):

• Contract and/or PO states you’re acting as agent to procure specified items.

• Supplier invoice is addressed to the client (or clearly shows the client as customer).

• You don’t add any margin to the goods’ price.

• Your invoice to the client shows two separate lines:
  • Your design/arrangement fee (this is your income; VAT only applies once you’re registered).
  • Disbursement: En Allant Aux Baux Cypres cushion, Christian Lacroix Maison - £165 (exact cost, no VAT added by you).

If you add a margin or if the paperwork shows you as buyer, HMRC will treat it as your supply (a resale), meaning the full amount counts to the threshold.

2) You are VAT registered, but the furnishings supplier is not. Do you have to add VAT when recharging the client — and can that be avoided?

If you’re the principal (reselling): Yes. You must charge VAT on the full amount you bill the client, even if the supplier didn’t charge you VAT. That’s because your supply to the client is a taxable supply, and you account for VAT on your selling price, not on what VAT you did or didn’t suffer.

How to avoid charging VAT on the goods value: Again, operate as agent using HMRC’s disbursement rules. If the client contracts with — and is invoiced by — the unregistered supplier for the goods, then you only charge VAT (at 20%) on your fee for arranging/design. The goods cost is passed through at exact cost as a disbursement and is kept outside your VAT (assuming all eight conditions are met and you itemise correctly).

Warning: If you issue your own invoice for the goods or otherwise act in your own name, VAT law treats the goods as supplied to you and by you, pulling you into the supply chain — and you must charge VAT on the full onward charge.

3) You charge a mark-up or a finder’s fee. Do you declare only the mark-up as income, or the full cost?

There are two models — pick one and keep the paperwork consistent:

A) Principal (Resale) Model

• You buy the furniture and resell it to the client (you set the selling price, carry the credit/warranty risk, handle returns).

• VAT: You charge VAT on the full selling price (goods + any margin).

• Income (accounts): You recognise gross sales for the full amount and record your cost of sales separately.

• Use this if: You want to apply a margin to products and manage the full client experience end-to-end.

B) Agency / Disbursement Model

• The client is the buyer; supplier invoices are in the client’s name; you just arrange and pay on their behalf.

• You pass on goods at exact cost as a disbursement (no margin), shown on a separate line; and you separately invoice your finder’s fee/arrangement fee (this fee is your income).

• VAT: You do not charge VAT on the disbursement (it’s outside your VAT), but you do charge VAT on your fee (if registered). You cannot claim input VAT on disbursements either.

• Income (accounts): You recognise only your fee as revenue; the disbursement bypasses income (it’s a pass-through).

• Use this if: The client would benefit from avoiding VAT on goods supplied by a non-VAT-registered supplier, and you’re happy charging a transparent fee instead of a margin.

Important: Adding a mark-up to a “disbursement” breaks the disbursement conditions. If you want a margin on goods, you are almost certainly acting as principal, and VAT applies to the full charge.

Quick checklist: getting the agency/disbursement route right

To treat the goods cost as a disbursement you must meet all eight HMRC conditions, including: act as agent, client is the user/beneficiary and responsible to pay, client knows the third-party supplier, you show the cost separately, you pass on the exact amount, and the goods are in addition to your own services. Keep evidence (orders, permissions, invoices) and don’t claim input VAT on those items.

Practical tips for interior design studios

• Decide per project whether you’re principal or agent — and reflect that in contracts, POs, and invoices.

• If you’re close to the £90k threshold, remember it’s based on total taxable turnover (everything you sell that isn’t exempt). Poorly structured recharges can push you over.

• Where a supplier is not VAT registered, an agency/disbursement approach can save your client VAT on the goods (they’ll still pay VAT on your fee if you’re registered).

Final word

Getting the paperwork and wording right up-front prevents painful VAT surprises later.