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HMRC internal manual

VAT Valuation Manual

Specific applications: apportionment and valuation of membership benefits: payment by deed of covenant

Sometimes subscriptions or membership fees are paid by a deed of covenant. This allows the club or association to reclaim a sum of money that is related to the basic rate of income tax.

For the purposes of value for VAT there are two approaches:

  1. The subscriber completes a deed of covenant but still pays the same amount in money as a non-covenanting subscriber. Here the value of the supply is the monetary charge only because the payer gains no advantage by completing the covenant. Make no addition in respect of the sum received from HMRC.
  2. The subscriber who completes a deed of covenant pays less in money than a non-covenanting subscriber. Here the covenant is regarded as non-monetary consideration given in return for the reduction in charge. Section 19(3) of the VATA 1994 provides that the value of this non-monetary consideration will be equal to the amount by which the charge has been reduced. You then arrive at the full value for VAT purposes by adding to that amount the amount of money actually paid by the covenanting subscriber.