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HMRC internal manual

VAT Supply and Consideration

Basic principles and underlying law: Supply for no consideration

Provision is made in UK law to implement the relevant parts of Articles 5 and 6 of the EC 6th VAT Directive (now Title IV of the Principal VAT Directive 2006/112) and treat certain transactions made for no consideration (that is free) as supplies for VAT purposes. These are:

  • the permanent transfer/disposal of business assets (VAT Act 1994, Schedule 4, paragraph 5(1))
  • the temporary application of business assets to a non-business use (VAT Act 1994, Schedule 4, paragraph 5(4))
  • the self-supply of goods or services (Treasury Orders, in the form of SIs, made under VAT Act 1994, Sections 5(5) and 5(6)).

A supply is also deemed to have taken place if assets are retained by a trader after deregistration (VAT Act 1994, Schedule 4, paragraph 8).

A supply also takes place where services are put to a private or other non business use - VAT (Supply of Services) Order 1993 (SI 1993/1507).

The above are deemed to be supplies for VAT purposes to prevent the goods or services being enjoyed tax-free by the final consumer. VAT would have been reclaimed on the purchase of the assets or services or on the costs incurred in acquiring or producing goods subject to a self-supply charge, but no output tax collected without the deeming provisions.

Further guidance on the supplies of goods and services for no consideration is contained in VATSC20000 and VATSC27000.