The key feature of a part-exchange transaction is that there are two supplies, i.e. a sale and a purchase for each party. The amounts should not be ‘netted off’. VAT is payable on the full value of supplies made.

Example 1: Part-exchange

For example, if a van worth £5,000 is sold by a VAT-registered trader in return for:

(1)£3,000 cash; and

(2)a second-hand car worth £2,000 (non-monetary consideration),

then output tax is due on the £5,000 value of the van (i.e. the VAT fraction multiplied by £5,000), not on only the cash received of £3,000.

Example 2: Part-exchange

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