Trade discounts and mark-up: what to tell clients, what to put in the contract, and the VAT effect

Trade accounts usually come early in a studio’s life. A decision about what to do with the discount often does not. It tends to get settled job by job, sometimes after a client has found the same lamp online for less than your invoice. This guide sets out the three common positions, the contract wording that supports each one, the VAT consequences, and a simple way to see your margin on every line of every project.

This is not tax or legal advice. Take the VAT section to your accountant and the contract section to whoever drafts your terms.

What a trade discount is, and why it causes friction

A trade account gives a studio a price below retail, as a fixed percentage, a trade price list or a per-project deal.

Friction appears when the client does not know the discount exists, or knows about it but not what happens to it. Clients can see retail prices online, and an invoice close to retail invites the assumption that you kept a discount quietly. The discount is rarely the problem. Finding out late is.

Interior Designers Hub reaches a similar conclusion in its piece on whether to share or keep trade discounts: there is no single right answer, the choice depends on your business, and being upfront about it is what matters.

The three positions

1. Pass the discount on and charge a procurement fee

The client pays the trade price. You charge a separate fee for sourcing, ordering, chasing and receiving, either as a percentage of product spend or as a fixed amount per stage. Your income from procurement is then explicit, and the client can compare product prices with retail and see the saving.

Works well when: clients are cost-conscious or commercial, the scheme is large, or you would rather be paid for your time than for the goods.

Watch for: a percentage fee falls when the client trims the budget, though the ordering work does not. A fixed fee avoids this but needs a defined scope, such as a number of items or deliveries.

2. Keep the discount and disclose it

You sell to the client at retail, or at an agreed price between trade and retail, and keep the difference. The contract says so plainly. The margin pays for the procurement work and the risk of placing orders.

Works well when: your design fee is modest and product margin makes up the rest, or clients prefer one all-in price per item.

Watch for: clients who compare prices online; disclosing up front lets you explain the margin before they find it. You also carry more risk, because you are selling goods and take the complaint if something arrives damaged.

3. Share it, or charge cost plus a stated mark-up

Many studios settle somewhere in between. Either the client gets part of the discount, or every item is charged at your net cost plus a stated percentage. Cost-plus is the easiest to explain: the rule is the same on every line, whatever each supplier’s discount.

Watch for: agree in advance whether “cost” includes delivery, packaging, import charges and currency conversion. Left unsaid, it will be disputed later.

A worked example

Illustrative figures only. A dining table retails at £1,400 ex VAT and your studio’s trade price is £1,000 ex VAT. Assume you are VAT-registered and buy and resell the table yourself.

If you are VAT-registered, VAT at the standard rate is then added to the client’s price, and to the fee in the first row. All three are legitimate. The point is that the client should be able to work out which row they are in from what they signed.

What the contract should say

The BIID’s Code of Conduct (1 April 2026) requires members to enter into a written agreement before accepting or undertaking work. Where relevant, that agreement must cover their fee, or how it is calculated, and any expenses or costs relevant to the scope. The code also asks members to act with transparency, rules out accepting payments or benefits that could reasonably be perceived to impair impartiality, and requires clear records of purchases, expenses or fees on request. It is a sensible standard for members and non-members alike.

Whichever position you choose, the agreement should cover:

• Your position on trade pricing. In one sentence, say whether you pass discounts on, keep them, or charge cost plus a stated percentage. If you keep them, say so in those words.
• What “cost” means. List delivery, packaging, storage, import VAT and duty, courier fees and currency conversion, and say whether each one is passed through at cost or included in the item price.
• Who buys the goods. Say whether you buy as principal and resell, or place orders as the client’s agent with the supplier invoicing the client directly. This affects VAT, risk and who the client complains to.
• Deposits and payment timing. Say when the client pays for goods relative to your order. Many studios want client funds in hand before placing a non-refundable order.
• Price changes. State what happens if a supplier raises a price, or an exchange rate moves, between the quote and the order.
• Returns and cancellations. Bespoke and made-to-order items are often non-returnable. Say so before the client approves them.
• Commissions and introducer fees. If any supplier pays you for an introduction, disclose it.

Private clients are usually consumers, and the BIID code asks members to take reasonable steps to ensure their agreement cannot be considered to contain unfair provisions where clients are treated as consumers. Have your standard terms reviewed once, not adjusted on every job.

The VAT consequence: disbursement or recharge

HMRC lets you treat a payment as a disbursement, outside the VAT on your own supply, only if every one of these conditions is met (from VTAXPER39000 and VAT Notice 700, paragraph 25.1):

1. You acted as your client’s agent when you paid the third party.
2. Your client received and used the goods or services.
3. Your client was responsible for paying for them.
4. Your client authorised you to make the payment on their behalf.
5. Your client knew the goods or services would come from a third party.
6. Your outlay is itemised separately on your invoice.
7. You recover only the exact amount you paid.
8. The goods or services are clearly additional to your own supply.

Condition 7 settles the mark-up question. HMRC’s guide on costs or disbursements passed to customers says you must pass on the exact amount of each cost. Costs that do not qualify are recharges, which form part of your own supply, so you must charge VAT on them. Once you add a mark-up, keep a discount, or add a handling charge, the item cannot be a disbursement. A studio buying furniture in its own name and invoicing the client is usually selling as principal, mark-up or not.

Three practical consequences follow:

• If you are VAT-registered and resell as principal, charge VAT on the full price to the client, including your margin, and reclaim the VAT on the supplier’s invoice in the usual way. The discount you keep is part of the value VAT is charged on.
• If you treat an item as a genuine disbursement, you cannot reclaim the VAT on it, and it must be itemised separately on your invoice.
• If you are not VAT-registered, product sales you make as principal count towards your taxable turnover. You must register if taxable turnover for the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days. A studio with modest fees can cross the threshold through furniture alone. Ask your accountant how your sales are counted.

On discounts more generally, Notice 700 paragraph 7.3.2 says that where you give a customer an unconditional discount and they pay the discounted amount, VAT is based on the discounted amount. Pass the discount on and the client’s VAT is calculated on the lower price. Our guide to VAT for interior designers in the UK covers registration, VAT invoices and import VAT in more detail.

Keeping margin visible, line by line

The contract tells the client how you charge. Your records need to show whether you made the margin you expected. Margin usually leaks through unrecharged delivery, a price rise quietly absorbed, or a euro invoice paid at a worse rate than quoted.

For every FF&E line, hold these figures side by side:

Add those lines up by project and you get product margin per job; add fees and time to see whether the project made money. If you use Xero, our guide to Xero for interior designers covers setting up your accounts so product sales and fees can be reported separately. The guide to fee structures covers how product margin sits alongside fixed, hourly and percentage fees.

In Techstyles, FF&E lines carry UK VAT, purchase orders stay in the supplier’s currency, and invoices convert at the day’s rate, which is then frozen on the invoice. The finance tools send both to Xero, each in its own currency, so your accounts match the documents you actually issued.

Showing the client what they approved

Transparency is easier when the client approves each item in writing, at the price they will pay, before you order. That gives both sides a dated record of the product, finish and price. A client portal keeps those approvals in one place; a signed schedule by email works too, if you can find it again.

Whichever position you choose, put it in writing before the first order and record the numbers on every line. If you would like those numbers in one place, from the schedule through to Xero, you can try Techstyles free for 30 days.