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Where a business records its transactions with associated businesses at an 鈥渁rm鈥檚 length鈥� result in its accounts, there should usually be no special transfer pricing or open market value issues arising in respect of those transactions for VAT purposes.

It is HMRC鈥檚 view that balancing payments under paragraph 7A of Schedule 28AA ICTA 88 (s196 TIOPA 10), do not in themselves, create taxable supplies for the purposes of VAT. However payment or receipt of a BP may be an indicator that the value of a previous taxable transaction may have been understated and therefore may need to be revisited to see if a correction for VAT is required.

Similarly when a Transfer Pricing Adjustment does not result in a Balancing Payment then there would usually be no issues arising in respect of these transactions for the purposes of VAT. However the Transfer Pricing Adjustment鈥檚 existence may be an indicator that the value of a previous taxable transaction has been understated and therefore may need to be reviewed to see if a correction for VAT is required. However, there are some circumstances where the Balancing Payment may constitute consideration for supplies between parties - see examples at VATVAL15800.

Where both the 鈥渁dvantaged鈥� and the 鈥渄isadvantaged鈥� persons between whom a Transfer Pricing Adjustment and a Balancing Payment are made are within the same VAT group at the time of original supply and subsequent adjustment no liability to VAT would normally arise.