Reply To: Barter trade VAT implications

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This is quite complex but i will try to answer in simple language.

Firstly, VAT is due on the sell of furniture for cash £15k plus advertising services received.

1. Cash payment:
VAT is due on the full £15k on the tax point which is on sale completion or invoice date (if invoice is issued within 14 days). You cannot defer VAT payment on the installment payments.

2. Advertising services:
Note consideration is made up of monetary and non-monetary values. In this case non-monetary consideration is not agreed in advance i guess. VAT case abt Naturally Yours Cosmetics (where the tax payer was selling cosmetics products to party hostesses) is your guidance on non-monetary considerations. Consideration should be assessed from the recipient of the consideration ie company X which could be the cash equivalent or value of the advertising services the company would normally charge. The value is VAT-inclusive amount and hence VAT is 1/6 of the amount.

Hence the invoices on furniture will include both cash and advertising services and this is issued to X at outset.

Since Y is getting advertising services (these are not FREE). A value has to be attributed to the services which i guess is the total value of furniture less the cash payment as shown above. Normally such a service which is provided continuously, the tax point is the earlier of invoice date or payment. However given that Y has already invoiced this (cash payment plus advertising), the cash payment is taken as an advance payment and hence tax point is at outset.

Y will record output tax for total consideration and input tax on the advertising services provided by X.

Cash received at outset of £3k may be used to make the net VAT payment.