Where the value of a supply in money between connected persons is less than its open market value and the person receiving the supply is not entitled to deduct all the input tax, HMRC may direct that the value of the supply should be taken to be its open market value (VATA 1994, Sch. 6, para. 1).

Such a direction must be given by notice in writing to the person making the supply and within three years of the supply being made. Any direction given in respect of a supply, which has already been made, may include a direction about future supplies. Whether a person is connected with another is determined in accordance with CTA 2010, s. 1122.

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