Readers’ forum: Compensation deal

My client runs a haulage business which is registered for VAT. The business has recently agreed a compensation deal with a German manufacturer linked to faulty parts in some of the vehicles which had to be replaced at a big cost to my client.

Instead of paying a monetary amount the German supplier has instead agreed to supply three new lorry engines which will be imported from Germany with a value of £1 shown on the paperwork. The client has accepted this proposal. However what do we do about VAT – both import VAT on arrival and also output tax on the client’s next VAT return? Is customs duty an issue as well when the goods arrive at Dover?

My client will be declared as the importer of record when the goods arrive.

Query 19 830 – Laurie.

Is this a barter transaction or...