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HMRC internal manual

VAT Valuation Manual

From
HM Revenue & Customs
Updated
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Non-monetary consideration: part exchange: introduction

A common situation in which you are likely to encounter a partly non-monetary consideration is part exchange, where goods are supplied in return for money and other goods. The general rule is that the goods taken in part exchange are equal in value to the amount by which the price at which the goods would otherwise have been supplied has been reduced. The value of the supply is therefore the tax-exclusive amount that would have been charged if no goods had been taken in part exchange. Remember, this value is being determined by Naturally Yours principles: the question you are effectively asking is not: What would anyone else have had to pay if the payment had been wholly in money? But, what would this provider of the part exchange goods have had to pay if the payment had been wholly in money? To illustrate that difference by an example:

Example

‘A’ sells goods to the majority of his customers for a retail price of £100. To customers in the same line of business he offers the same goods at a 5% reduction, £95. Customer B is a “normal customer” and he brings in a part-exchange good which A values at £10. Customer C is a “trade customer” and he brings in a part-exchange good which A also values at £10.

The total value of the supply to C will be £95 whereas that to B will be £100. This is because we are looking to see what C specifically would otherwise have had to pay if his payment had been wholly in money. (Had the appropriate valuation been open market value, then the total value of the supply to C would have been £100 like that of the supply to B). VATVAL06120 sets out one situation in which you can accept that the value of the supply is less than the monetary alternative would be when applying the above principle.