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HMRC internal manual

VAT Valuation Manual

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HM Revenue & Customs
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Monetary consideration: adjusting the value of a monetary consideration

There may be situations in which you believe that a trader has over-inflated or artificially reduced the charge for a supply. The most common example that VAT Supply have received requests for guidance upon is the transfer of a freehold or long-term leasehold interest at a nominal payment of, say, £1.

The valuation rules in these cases can be summarised as follows:

  • While Art. 80(1) of the Principal VAT Directive provides for an inflated payment in money to be reduced for VAT purposes, this has not been implemented in UK law. There is no UK legislation by which an inflated payment in money can be reduced.
  • a nominal payment in money can only be treated as having a higher value for VAT purposes in limited specific circumstances. These circumstances are those covered by the provisions of the VAT Act 1994, Schedule 6 (paragraphs 1 and 2), concerning “connected persons” and direct selling. Full guidance on these provisions can be found in VATVAL07000.

However, in those cases where only a nominal monetary payment appears to have been made, you should look carefully to satisfy yourself that the recipient of the supply has not also provided additional consideration in a non-monetary form.

For example, in addition to giving £1 for a lease, the tenant may have been obliged to perform certain building works or improvements to a property for the landlord’s benefit.

Guidance on valuing this additional non-monetary consideration can be found in VATVAL05000. If you require guidance in establishing the existence of a non-monetary consideration you should refer to VATSC30500: Supply and consideration” in the first instance.