By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Consideration
  • What is consideration?
  • Forms of consideration
  • Disbursements

This guidance note provides an overview of what constitutes consideration. This note should be read in conjunction with the Supplies of goods, Supplies of services and Consideration - specific situations guidance notes.

What is consideration?

Consideration is the 'payment' made for a supply of goods or services. It is usually a payment in money, but it can also be non-monetary consideration, such as supplies of goods or services that are provided in exchange (for example a barter transaction or part exchange).

There is no legal definition of consideration but the EU legislation stated (this legislation has been repealed but this definition is still widely used):

“Consideration” means everything received in return for the supply of goods or the provision of services, including incidental expenses (packing, transport, insurance etc), that is to say not only the cash amounts charged but also, for example, the value of the goods received in exchange or, in the case of goods or services supplied by order of a public authority, the amount of the compensation received'.

There must be a direct link between the supply and the consideration received. Therefore in order that a supply for a consideration can be made, there must be at least two parties and a written or oral agreement between them under which something is undertaken or supplied in exchange for the consideration. There will be a direct link between the supply and the consideration because the supplier expects to receive something in return for the supply and would not intend to fulfil the obligation unless the business thought that the customer would remit payment.

The requirement for there to be a direct link between the supply and consideration has been the subject of a number of court cases and two are outlined below.

One case concerned a cooperative that provided cold storage facilities to its

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