The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
This guidance note considers some of the basic principles associated with valuing supplies for VAT purposes, namely:
how to value supplies when consideration is wholly in money
how to value supplies where the consideration is not wholly in money
issues related to whether amounts are inclusive of exclusive of VAT
For an overview of valuation for VAT more broadly, see the Valuation ― overview guidance note.
In-depth commentary on the legislation and case law is provided in De Voil Indirect Tax Service V3.151.
Often consideration for a supply will be given exclusively in money (‘consideration’ is broadly synonymous with payment but see the Supply and consideration ― is the supply for consideration? guidance note for further details).
Where consideration is wholly in money, then the value of the supply for VAT purposes is the amount which, with the addition of VAT, is equal to the consideration. This is easier to understand with the aid of numbers. For example, if a person gives consideration of £120 for a standard-rated item, then the value of the supply for VAT purposes is £100. This is because when VAT at 20% is added to the £100, this is equal to the consideration of £120.
To arrive at the value of a standard-rated supply (ie a supply at which VAT is chargeable at 20%), the consideration can be multiplied by 5/6. Similarly to arrive at the VAT amount, the consideration can be multiplied by 1/6. This 1/6 is sometimes referred to as the VAT fraction (the fraction is 1/21 for reduced-rated supplies at 5%).
When presented with a monetary figure that is exclusive of VAT, then this is simply multiplied by the relevant rate of VAT (normally 20%) to arrive at the amount of VAT due. It should be noted that this ‘taxable amount’ must include any taxes, duties, levies and other charges due, with the exception of the VAT.
In certain circumstances, there
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