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HMRC internal manual

VAT Taxable Person Manual

Issues to consider: joint ventures and partnerships: joint supplies of goods

If the supply concerned is one of goods, you need to determine who has title to those goods, and then apply one of the accounting procedures below.

a. Joint purchases for resale

The most common procedure (and easiest to control) reflects the supply chain which normally exists where one venturer controls the purchase and sale of the goods but requires investment from other parties. This situation frequently occurs with sales of antiques and second-hand works of art. The correct procedure is as follows:

  • the leading venturer reclaims input tax on the initial purchase of the goods;
  • ‘buy-ins’ or purchases of ‘a share in the goods’ by other venturers are investments in hope of the profits on resale - they are not consideration for a supply of goods or services and are thus outside the scope of VAT. Invoices or other documents relating to these contributions must bear a statement indicating the name and address and VAT registration number of the venturer who is accounting for VAT on the article as a whole;
  • the resale of the goods is a supply by the leading venturer who accounts for output tax in the normal way;
  • the subsequent distribution of sale proceeds to the other venturers is outside the scope of VAT as a profit share.

If a venturer supplies a service (eg of repair or maintenance) in respect of the goods, to the joint venture, that is a separate supply which may be invoiced to the leading venturer who may then take input tax deduction where output tax has been charged.

You should only allow traders to use alternative procedures if you are satisfied that there is no revenue risk involved. For example, in the following situations, you should insist that the correct accounting procedure is followed:

  • where a registered trader reclaims input tax but attempts to make the sale through a non-registered company;
  • where a venture exists between two companies - one fully taxable and one partly exempt - and there is an attempt to route the purchase and sale through the partly exempt company in order to increase its recovery rate, even though the taxable company takes title to the goods.

Where acceptable, an alternative procedure is as follows:

  • the article may be supplied and invoiced initially to one VAT registered venturer who claims input tax;
  • payments received from other venturers for their ‘shares’ in the article are regarded as consideration for supplies of services: the venturer who claimed input tax must account for output tax on those supplies of services; input tax is recoverable by the venturers subject to the normal rules;
  • when resold, the article can be treated as supplied by any one of the venturers and output tax charged if he is VAT registered;
  • the payments made from the proceeds of sale to other venturers are consideration for a supply of services by each of them - the sale of their ‘share’ to the seller: each venturer must account for output tax, if registered for VAT, and input may be claimed by the seller.

b. Joint purchase of an article for use by the joint owners (eg a farm machine bought by a group of farmers)

Here the correct accounting procedure is as follows:

  • the article is supplied to one registered member or to the group (if separately registered eg as a syndicate) and that person may reclaim input tax, subject to the normal rules;
  • payments made by other members to that person (the registered member or group), whether for the initial purchase of the article or its maintenance, are consideration for the right to use the article: this is a supply of services and output tax must be accounted for by the registered member or group as appropriate;
  • if the article is eventually resold, output tax is due from whomever originally received the article - either the registered member or the registered group;
  • payments made by the registered member or group to the other members in order to pass on the proceeds of the sale are outside the scope of VAT as a profit share.