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’.
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 ...