VAT tripartite supplies—third party consideration
Produced in partnership with Matthew Wentworth-May
VAT tripartite supplies—third party consideration

The following Tax guidance note Produced in partnership with Matthew Wentworth-May provides comprehensive and up to date legal information covering:

  • VAT tripartite supplies—third party consideration
  • The supplier’s liability to account for VAT on third party consideration
  • Recovery of VAT as input tax in tripartite arrangements

UK VAT is charged on a supply of goods or services made (or treated as made) in the UK at a rate of, usually, 20% of the value of the supply. Although it is the person supplying the goods or services that is required to account to HMRC for the VAT, the cost of the VAT is usually passed on to the recipient of the supply. A VAT-registered recipient of a supply can therefore typically claim (or recover) the amount in respect of VAT that it has paid provided, broadly, that such supply is directly linked to its VATable business, ie it is a VAT cost of the recipient in providing its own VATable supplies of goods or services.

Normally, a supply of goods or services involves two parties—the supplier and the customer. Sometimes, a third party pays an amount to the supplier in connection with the supply of services to a third party customer. This is referred to as a tripartite supply.

This Practice Note considers the application of VAT to tripartite arrangements, specifically:

  1. that a supplier is still liable to account to HMRC for VAT arising in respect of, and by reference to, third party consideration, and

  2. that there are circumstances, albeit uncertain, in which a third party providing consideration for what is ostensibly a supply made to another customer should