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HMRC internal manual

VAT Valuation Manual

Non-monetary consideration: Naturally Yours and open market value

Traders may seek to use Naturally Yours as an authority to show that a non-monetary consideration can never be valued by reference to the open market value of the supply. They may confuse “open market value” with “ordinary retail price”, arguing that wherever “reward goods” are provided more cheaply than at the catalogue price the value is either only actual money paid for the goods or their cost price. This argument usually contains the misconception that Naturally Yours was in fact applying some sort of open market valuation basis. The Advocate-General, however, makes it clear that the Naturally Yours valuation is subjective and not an objective open market value (see VATVAL05300).

In cases where it is not possible to obtain a valuation by the “Naturally Yours method”, the value will normally be the cost of the goods to the supplier. However, Empire Stores assumes that cost is the only possible alternative and this appears contrary to the Advocate-General’s opinion in Naturally Yours. In Naturally Yours, the Advocate-General states explicitly that an open market value may still apply in certain circumstances:

“I should not in any event, like it to be concluded from the foregoing reasoning, a conclusion that would be preferred by NYC and, as is evident from its written observations, by the Commission, that it is completely impossible to determine the consideration, for the purposes of art 11(A)(1)(a) of the Sixth Directive (now Article 73 of Dir. 2006/112), by reference to the concept of normal value or open market value. In fact, in certain circumstances, that will be the only effective way of calculating the value of the consideration and levying tax on it, so as to prevent fiscal distortions or avoidance of tax which would necessarily occur if the part of the consideration not represented by the transfer of a given sum of money had to be disregarded.”

If you encounter a case in which the “reward goods” are not sold at a wholly monetary alternative to the non-monetary consideration, but in which a cost price valuation does not seem to produce the proper result, a full report of the circumstances should be submitted to the VAT Supply team.