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HMRC internal manual

VAT Valuation Manual

Specific applications: apportionment and valuation of membership benefits: voluntary interest-free loans

Our policy to date has been to treat voluntary interest-free loans according to whether lenders receive preferential treatment to non-lenders. The logic behind this is that where others can obtain the same supplies as the lender by paying for them, the fact that the loan is optional does not prevent its being non-monetary consideration and it can then be valued by comparison with the monetary alternative. There are two distinctly different situations.

  1. Free or reduced memberships. This is the more usual situation. Members who have made a loan may be entitled to receive the same benefits from the club upon payment of no subscription, or a reduced one, for all or part of the loan period. We regard these members as being supplied with the continued rights of membership for a partly non-monetary consideration. Value is to be determined by reference to the subscriptions paid by members that have not made loans.

However, where the majority of members have made loans, the subscription cannot be regarded as the normal monetary equivalent any longer, and the notional interest calculation should be used instead.

  1. Additional entitlements. A less common situation is where members who make loans pay the same subscriptions as other members but receive an additional advantage that the others do not. An example could be a golf club that decides not to charge green fees to members that have made loans to it. To establish the value of the making of the voluntary loan, you will need to look at how much non-lending members pay for the additional advantage.

An additional point to check in this situation is the liability of the supply being made to the lenders: because we are dealing with a specific supply made for a consideration separate from the subscription, it may be that the liability differs from the general supplies made in return for the subscription.

If the additional advantage to the loan-making members is not available to anyone else at any price, the notional interest valuation explained in VATVAL11540 should be used.