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HMRC internal manual

VAT Valuation Manual

HM Revenue & Customs
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Special valuation provisions: non-business use of services supplied to a business - Paragraphs 5 and 7, Value Added Tax (Supply of Services) Order 1993

This Order (SI 1993, No 1507) was issued under powers conferred by what are now section 5(4) and (8) of the VAT Act 1994. It creates a supply when a person carrying on a business puts services supplied to him to private use. The value of this supply of services is determined in accordance with paragraphs 5 and 7 of the Order, which provide as follows:

  1. The value of a supply which a person is treated as making by virtue of this Order shall be taken to be that part of the value of the supply of the services to him as fairly and reasonably represents the cost to him of providing the services.

  2. Nothing in this Order shall be construed as making any person liable for any tax which, taken together with any tax for which he was liable as a result of a previous supply of the same services which he was treated as making by virtue of this Order, would exceed the amount of input tax for which he was entitled to credit under sections 25 and 26 of the Act in respect of the services used, or made available for use, by him; and, where the tax chargeable would otherwise exceed the amount of that credit -

(a) He shall not be treated as making a supply of the services where the amount of that credit has already been equalled or exceeded; and

(b) In any other case, the value of the supply shall be reduced accordingly.

The value of the supply of services will therefore be based upon the cost of their provision, subject to an upper limit set by the amount of input tax credit claimed when the services were obtained. Queries on whether a supply falls within the remit of SI 1993, No 1507 are proper to the Deductions and Financial Services team. The VAT Supply team has responsibility for questions on the value of these supplies.