VAT on property barter transactions

Source Taxjournal

Covid-19 has led to a wave of lease variations as tenants seek to negotiate lower rental liabilities. Such variations have highlighted the potential unexpected VAT costs associated with barter transactions. HMRC has issued guidance dealing with specific lease variations, but there remain certain variations and many other property transactions where the position is less clear. Barter transactions can be easily missed. Each supply has its own tax liability, so VAT may be payable in respect of one side of the barter but not the other. Barter transactions pose the greatest risk to the recipient of a taxable supply who cannot fully recover the VAT charged (e.g. charities). The parties should clearly document the agreed consideration for the transaction, as the value is a subjective one. A gross-up clause may be sufficient to allow each party to charge VAT to the extent payable, but it may not be in more complicated transactions.

Newsletters

• Revenue and Customs Brief 11 (2020): VAT and Stamp Duty Land Tax when existing leases between landlords and tenants are varied
• Revising property lease terms and barters – the VAT implications
• HMRC policy on lease changes

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