Tax Journal

Back to basics: VAT on deemed supplies

8 March 2012

Just because no monetary consideration is passing hands does not mean that no supply is taking place for VAT purposes. Deemed supplies are often overlooked and can result in significant VAT costs. Where high value items such as property are transferred for no monetary consideration, the VAT values at risk can be significant. By carefully considering such high value one-off transactions from a VAT perspective and ensuring the correct actions are taken in time, significant irrecoverable VAT costs can be avoided. Often this can be something as simple as ensuring an option to tax is notified to HMRC in time but without this, the irrecoverable VAT cost may cause major issues to businesses.

Deemed supplies can often be overlooked where, for example, properties are transferred for no consideration and an option to tax is not put in place. Sarah Franklin provides your refresher guide to the rules.

What is a deemed supply?

Certain transactions are treated as supplies of goods and services where they otherwise may not have been, for example, where no consideration is received. Such transactions are known as ‘deemed supplies’ or ‘self-supplies’ and businesses should be aware of the situations in which these may occur and the various pitfalls to watch out for to avoid irrecoverable VAT costs being incurred.

Deemed supplies can often be overlooked where properties are transferred for no consideration and this can result in significant VAT costs, for example where an option to tax is not put in place by the relevant date. We explore some relevant examples later on in this article.

Purpose of the deeming provisions

The purpose of both the EU (Directive 2006/112/EC, Arts 18 and 27) and UK (VATA 1994 ss 1(1)(a), 56(6) and Sch 4 para 8) provisions is:

to prevent distortion of competition ie, to prevent the final customer from benefiting from goods or services which have not borne VAT. This brings certain supplies into the scope of VAT which would otherwise not be eg, supplies made for no consideration; and to simplify tax accounting and administration and prevent avoidance.

There are two types of deemed supplies: a deemed supply involving two parties and a deemed ‘self-supply’.

Deemed supplies

As a general rule, a supply of goods means any transfer of ownership of goods. This is normally a sale. However, it also covers situations where non-monetary consideration is received, eg, barter or part-exchange ...

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