Consultant receiving shares instead of monies

Our client (a limited company) provides consultancy services. Recently they provided services to a company based in Portugal. Portuguese company paid them in shares instead of monies.

Question 1: Whether shares received will be considered trading income?

Answer: 

  1. Corporation tax

Yes, the value of trading income received in non-monetary form is taxable in full as trading income. See section 49A CTA 2009; as inserted by FA 2016. HMRC simply enacts in legislation, 1948 House of Lords decision in Gold Coast Selection Trust Ltd v Humphrey (30TC209). See Explanatory Notes to FA 2016; Volume 1 Page 177.

  • VAT

As services are provided out of UK, VAT is not chargeable. See VAT Notice 741A Section 12.

  • Accounting

As per FRS 105 (micro entities) Section 18 Revenue Clause 18.7:

(b) …at the fair value of the goods or services given up

Conclusion:

Thus, if the client receives shares or any other goods or services, client should value the items received and enter it as trading income in its books.

Question 2: What is the value of shares received?

We asked the client to estimate the number of hours they will spend on this assignment and multiplied it by their usual hourly rate to get the trading income.

Bonus

You may have noticed that client would need to pay corporation tax now on an estimated income, when they have not received any cash funds. These shares are long term investment.