How is tax applied to bartering?

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Contrary to some misconceptions, bartering is not a means of business tax evasion.

Transactions are treated in the same way as a cash transaction and are therefore tax-deductible. But with VAT registered companies, the way that this is paid can depend on the barter company. It can either be charged in pounds sterling or as trade pounds.

For example, with Bartercard, a business will pay the VAT on a purchase in trade pounds in the same way that it will invoice other members for a total number of trade pounds that includes VAT. “Eventually, the two cancel each other out and the cash is paid by each company at the end of the year,” comments Tairq Islam of Bartercard.

But Barter Marketing takes a different approach, with members being charged VAT separately and paying in cash on each transaction. “If someone buys £1k worth of printing they will pay for £1k in barter credit and then pay £175 in cash to the client,” says managing director Alan Cartledge.

“It assists in the cash flow because the VAT has got to be paid in cash at the end of the day – the tax man won’t barter.”

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