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HMRC internal manual

VAT Valuation Manual

Monetary consideration: the law

The basic valuation rule under EU law is contained in the EU Directive 2006/112, Article 73-.

“In respect of supplies of goods and services other than as referred to in Articles 74 to 77,the taxable amount shall include everything which constitutes the consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of such supplies.”

You should note that the EU provision does not distinguish between monetary and non-monetary consideration as the UK law does. The “other” goods and services referred to in Articles 74 to 77 are those for which the UK has enacted special valuation rules in the VAT Act 1994, Schedule 6. The corresponding UK provision that sets out the general rule for the valuation of a monetary consideration is in the VAT Act 1994, section 19(2) -.

“If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration”.

This is valuation on a VAT-inclusive basis - the value for VAT is that part of the payment which, when added to the VAT itself, gives a total equalling the payment. You will see that the expression “value” in the UK legislation is therefore equivalent to the phrase “taxable amount” in the EU Article. The VAT-inclusive treatment adopted in Section 19(2) is derived from the Principal VAT Directive 2006/112, Art. 78)

“The taxable amount shall include:

(a) Taxes, duties, levies and charges, excluding the value added tax itself;

(b) Incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer.”