Valuation ― special rules

Produced by Tolley

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

  • Valuation ― special rules
  • Open market value rules
  • How do I work out an open market value?
  • Supplies between connected persons
  • Direct selling rules
  • Other special valuation rules
  • Private fuel (fuel scale charge)
  • Imports
  • Prompt payment discounts
  • Deemed supplies
  • More...

Valuation ― special rules

This guidance note considers some important special rules associated with valuing supplies for VAT purposes.

For an overview of valuation for VAT more broadly, see the Valuation ― overview guidance note and for the basic principles of valuation, see the Valuation ― basic principles guidance note.

In-depth commentary on the legislation and case law is provided in De Voil Indirect Tax Service V3.151.

Open market value rules

In certain circumstances, supplies are valued at their ‘open market value’ for VAT purposes rather than in accordance with the normal valuation principles set out in the Valuation ― basic principles guidance note.

Circumstances in which open market value rules may apply include:

  1. supplies between certain connected persons

  2. ‘direct selling’ arrangements

  3. where a ‘self-supply’ occurs under rules for stock in trade cars (see the Buying and selling a car guidance note)

  4. where fuel is supplied to employees / certain connected persons at below cost (see the Motoring expenses guidance note)

How do I work out an open market value?

Broadly, the VAT legislation takes an open market value to be the amount of monetary consideration that would be payable by a person ‘standing in no such relationship with any person as would affect that consideration’. In other words, it is important to look at what would have been paid if the parties to a transaction were not connected in any way.

Supplies between connected persons

HMRC has powers to direct that a business must account for VAT on the open market value of certain supplies made between connected parties. For this connected person rule to apply, the following conditions must be met:

  1. a supply has to be made for a money consideration below open market value

  2. the supplier and its customer must be ‘connected persons’

  3. if the supply is a taxable supply, the customer must not be entitled to input tax credit for all the tax on the supply

VATA 1994, Sch 6, para 1(1)

The definition of connected person which is used

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