V3.108 Mutual supplies

Where the amount of consideration payable under a transaction is effected by set-off arrangement, for example where goods are taken in part exchange, there are often two separate supplies involved by way of barter and it is therefore necessary to identify these mutual supplies so that VAT is charged and accounted for in each direction1.

A mutual supply may be made when a person manufactures an article from material supplied by his customer, eg when a jeweller reworks a gold bracelet to produce a new article. If the gold bracelet is taken into a common stock, the trader supplies the new article and the customer supplies gold2. If the customer's gold is used in making the new article, the trader may make a supply of labour only; or labour and materials, if additional gold is used from stock in making the new article. The customer makes a supply only if a surplus of gold arises in making the new article and the trader takes it into stock rather than returning it to his customer3.

Where a landlord makes a payment to a (prospective) tenant under a transaction where the landlord grants to the tenant a lease or premises, this may amount to consideration for a supply of services by the tenant to the landlord. The mere agreement to enter into the lease where the parties agree that the relevant consideration (commonly called a reverse premium) is provided to the tenant as an inducement does not in itself amount to

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