Skils swap - any tax implications - The Book-keepers Forum (UK)

RuthA · Senior Member

Skils swap - any tax implications

Peasie · Expert

I've always wondered about this when I see programs on tv about it and thought at the back of my mind there would be tax implications but would prove too difficult for the HMRC to find out about. I'm sure on a recent one they even hinted at this.

I'm sure I've seen things written on trade promotions about possible tax implications of prizes used by employees. For instance, if so many points were accumulated via a companies purchases they can swap them for a tv or a digital camera etc. I think this is kind of similar - how many people would actually declare these items and it would be next to impossible to find out about.

EDIT : a quick google on bartering reveals there likely is tax implications. Don't have the time just now to read into it properly.

-- Edited by Peasie on Wednesday 4th of August 2010 01:03:33 PM

adi2402 · Senior Member

Not given this that much thought but just by looking at your post i could suggest that the website design could be deemed capital (assuming its not a glorified brochure and other tests) and if that is the case you would not get a straight tax deduction for it. you would generally get AIA's but this is dependent on the level other purchases in the year or you may have a corporate partner in your partnership and not be eligible for them.

Basically I am saying its not as straight forward as it might first seem.

And as i say I am just answering in relation to your scenario above and have only given it a couple of moments thought.

adi2402 · Senior Member

VAT and barter transactions

If you supply services or goods (new or second-hand) and receive other goods or services in payment, there are two separate supplies:

the supply from you to your customer
the supply from your customer to you

You must account for VAT, and so must your customer if they're VAT-registered. The VAT treatment is the same as for part-exchanges. You must both account for VAT on the amounts you would each have paid for the goods or services if there had been no barter and they had been paid for with money.

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the above is from HMRC website. You would need to invoice both ways and accounts for VAT and the income or expense. As it says above there are two separate supplies.

You see this quite frequently in agriculture with contra entries being commonplace between traders/farmers.

Wella · Expert

Hi Ruth

There is a VAT implication, if either party is VAT registered.

This link covers that aspect

http://www.hmrc.gov.uk/vat/managing/special-situations/samples.htm#4

Like you I haven't found anything income tax related though

Bill

adi2402 · Senior Member

yeah that's the same place i copied my quote from but cannot immediately see the Income tax legislation as wella mentioned

RuthA · Senior Member

I hadn't thought about the revenue/capital issue. The VAT makes sense, but it's frustrating that the income side of it isn't as simple to find.

attilabenko · Guru

Hi everyone,

I think I am not getting it.
I understand you should be accounting for it in two separate transactions. Ok, that is for now, when the actual transaction happened.
I don't get the income tax bit. You accounted for the transactions sales,capital whatsoever.
Comes year end,prepare your year end accounts and pay your income tax accordingly so where is the problem?
Or is the problem the valuation of products/services? If it is fair value or something?
There must be something about this in the standards used (ie FRSSE or UK GAAP,etc)

adi2402 · Senior Member

I think the original question was, if no money ever changes hands and you are just giving each other a "helping hand" then do you need to disclose the transactions.

yes you do.

attilabenko · Guru

I am slowly sliding to the dark side...about to take IFRS for SME's exam.
It is not in use yet and had been delayed to Jan.2013 but will not allow offsetting except for certain circumstances in hedge accounting (not many of us on here will be involved in this bit)
so will be simple...
Really good standard and far not as big as full IFRS and not as complicated as FRSSE (yet).
I am just getting ready in time for the changes...

For the above posts, agree with Adi, just think about it the only reason no money was involved to keep it simple, no unnecessary transactions from here to there and back.

RuthA · Senior Member

So....it needs to be accounted for. Which leads to my next question of how, exactly?

For the time being do we offset, or do we set up an account for payment in kind to go through? The latter seems better to me. Presumably since VAT must be processed as normal, there need to be invoices sent. Logic would suggest you record the invoice as normal, creating a debtor account, and then when the swap has been done the debtor account is brought to zero. That means that if the swap is not done for whatever reason, the debtor owes the monetary equivalent of the debt, which sounds right.

?????

attilabenko · Guru

Sounds right, just make sure HMRC is happy ;)

Quentin Pain · Senior Member

I would open a 'Barter Control Account'.

1. Debit Barter, Credit Sales (and VAT if registered)
2. Debit Expenses (or whatever) and VAT, Credit Barter

If it's a straight swap, the control account will be zero.

-- Edited by Quentin Pain on Friday 6th of August 2010 07:14:57 PM

Rhianrach · Expert

Quentin Pain wrote:

I would open a 'Barter Control Account'.

1. Debit Barter, Credit Sales (and VAT if registered)
2. Debit Expenses (or whatever) and VAT, Credit Barter

If it's a straight swap, the control account will be zero.

-- Edited by Quentin Pain on Friday 6th of August 2010 07:14:57 PM

I'm pretty sure this can be done as a bank account in accounting software, pay your supplier through your contra bank account and receive your payments through the same account, same thing account should be zero if a straight swap.

Quentin Pain · Senior Member

Yes, use a bank account type for sure. That way it ensures it is in current assets. If it was made a floating account, then it would switch between assets and liabs for easy interpretation if the swap was not 100%.