VAT supplies for no consideration
In most cases, a supply of goods or services for VAT purposes is deemed to have taken place in return for consideration. This is usually payment in money but can also be of a “non-monetary” nature, such as goods or services supplied in return. There is no legal definition of consideration in the VAT Act 1994.
However, HMRC quotes the following definition in its internal manuals that was taken from the EC 2nd VAT Directive Annex A13 (at the same time accepting that this is no longer in force after Brexit).
The expression “consideration” means everything received in return for the supply of goods or the provision of services, including incidental expenses (packing, transport, insurance etc), that is to say not only the cash amounts charged but also, for example, the value of the goods received in exchange or, in the case of goods or services supplied by order of a public authority, the amount of the compensation received.
There are additional provisions in UK law that treat certain transactions made for no consideration as supplies for VAT purposes. These are:
- the permanent transfer/disposal of business assets;
- the temporary application of business assets to a non-business use; and
- the self-supply of goods or services.
A supply is also deemed to have taken place if business assets are retained after VAT deregistration and where services are put to a private or other non-business use where input tax had been previously recovered.
