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HMRC internal manual

VAT Taxable Person Manual

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

When two or more parties come together to make supplies of services they will often prefer, for reasons of administrative convenience, to create an accounting chain so that the supply is invoiced by one company only. You should allow this to take place if you are sure that there is no revenue loss. The alternative is for each party to be responsible for the supply according to the level of output which the venture stipulates it makes.

It is possible for two or more parties to make a joint supply of services, and so this alternative cannot be denied to the trader. However, there are associated revenue risks, as explained at b. below. You should thus only allow this alternative if the parties specifically request it, and then only if you are sure that the parties are truly equal participants in the venture.

Tribunal justification for the above is given in the case of Greater London Council (LON/81/341). This concerned the joint mounting of a production by the GLC, who owned the hall, advertised the event, and printed and sold the programmes; and a production company, who provided the orchestra, singers, dancers, and associated musical material. The revenue from the production was then divided equally.

The tribunal found that the parties were jointly supplying a production to the public and that therefore supplies did not take place between them.

a. Are the parties truly equal participants?

The characteristics of a true joint venture are that two or more venturers agree to act in concert, fulfilling agreed obligations and inputting resources which are later correspondingly reflected in the level of benefit which they receive when the profits of the venture are shared. It is not necessary for profits to be split on a 50/50 basis for a true joint venture to exist - but if, for example, one venturer contributes 70% of the cost of the venture, we would expect that venturer to receive a 70% share of the eventual profits, and the other venturer only 30%. Thus, in a true joint venture, all co-venturers are equal to the extent that no one venturer has control over another. You may find it useful to consult the guidance at VTAXPER74000, which gives examples of joint ventures in the area of share farming.

b. Accounting consequences

If you are satisfied that the relationship is one of truly joint participants, venturers are individually responsible for accounting for VAT according to the level of output which the venture stipulates they make. Thus if both venturers are registered for VAT they must declare output tax on the value of their proceeds from the venture under their individual registrations; but if one or more venturer is not registered (and the proceeds of the venture are not sufficient to cause registration), the proceeds accruing to that venturer will escape VAT. Similarly, the venturers will not make taxable supplies to each other where they are only fulfilling their obligations under the venture.

There are obvious revenue risks in this situation, which emphasise the importance of only allowing this practice if the parties specifically request it; and then only if you are certain that a true joint venture exists.