Do I have to pay 'virtual' tax if no money is involved?

[Tarser]

Can I, as a private music teacher offer my services to people in exchange for their expertise? - ie, a simple skill swap where no money is involved at all? I've done this in the past - I swapped music lessons for lessons in computer technology for example. It seems a simple exchange to me but then I'm wondering if the tax people might see it differently. Lets say I charged £20 for a music lesson and the computer person also charged £20. At 20% tax, haven't we both dodged paying £8 in tax?, even though we haven't given each other a penny. I really don't know what is legitimate here!

[Old_Geezer]

Or if you charged £20,000 and the computer person charged £20,000 ?

I await the expert opinion with interest but unless the tax office have created a maintained scale of what 'should' be charged for every activity, and I suspect that unlikely, I'm inclined to think doing favours for each other is probably not taxable.

[FredPuli43]

You'd argue that you did what you did as a friendly favour, and charged nothing and the other party would do the same, surely, without mentioning any reciprocity ? Nobody taxes what you don't earn. You'd never put figures on anything.But I'm no accountant. You might distinguish this from what follows:

I do know that HMRC has already thought about barter. HMRC have rules . intended for farmers and others who traditionally have earned payment by receiving goods and settled debts by giving goods. The farmer often doesn't bother to record such transactions in monetary terms, it's all very rough and ready.This might be going on for years and involve large amounts of value. Not surprisingly, Revenue and Customs found that unsatisfactory !

[snags]

Unless you inform them, how will HMRC ever know as no money for services has been exchanged? You're simply doing a favour for someone.

[JohnJames79]

If you give your services for nothing, then there is no tax to be paid.
If you charge, then you will be liable for income tax and national insurance contributions.
It really is as simple as that. No payments made or requested = no tax liability.

[buildersmate]

I'm not an accountant - I just deal with lots of accountancy matters. But I've never seen an HMRC form that requires completion of one's earnings that talks about anything other than sums of money received - not value in terms of services received in lieu of cash.

[jno]

you could offer to teach an HMRC official to play the harmonica by way of tax

[ummmm]

Wasn't there a sort of scheme where people were encouraged to swap their skills?

[jno]

some places have their own currency - I don't know how they're taxed

http://thelewespound.org/what.html

[Flyhalf]

Sorry to burst your bubble. See this link
http://www.irs.gov/taxtopics/tc420.html
In small amounts, it is likely to be easy to hide, and penalty if discovered comparatively light. On a large scale, hmrc will pounce on both sides of the exchange.

[Flyhalf]

Sorry, that example is from USA, but applies equally in UK. I'll check for details, and get back to you.

[Flyhalf]

Tax. See under "Sales and Income" in http://www.hmrc.gov.u...p-part-partners.htm#3
'fraid it also applies to VAT -see http://www.hmrc.gov.u...ituations/samples.htm

[Tarser]

I am absolutely stunned by Big Jack's revelation - which must be the best answer here! Imagine this: I'll fix that roof for you. I just have to clear the moss off it...here, all done"

"That's great thanks! No charge today"
"Are you sure?"
"Yeah, of course! One good turn deserves another"

Innocent and a genuine exchange - APPARENTLY ILLEGAL!

[Flyhalf]

No, not illegal, just chargeable to tax if you provide a service for which you would otherwise charge as part of an ongoing exercise of trade or profession.
Let's say I, a bookseller, trim my neighbour's hedge along with my own, and he - unasked - gives me a bottle of Scotch for my 2+ hours labour. Nothing to declare.
BUT if I'm a gardener, or in a similar line of business, I have to include it as income.

[starone]

So, if I give my neighbour, who very kindly gives me a lift to the doctor's, some petrol money, am I breaking the law? I am, in effect, paying him.

[venator]

Tax and VAT follow the supply of services.

How you're paid is a separate consideration.

Having said that, very few people would stick their necks out...

[Skyline D]

There is absolutely no doubt whatsoever that the example, as set out in the original question from Tarser, would constitute a taxable transaction for both parties. They are undertaking business services and accepting payment for it which can be valued. It's definitely taxable. Of course in practical terms it would never be found if you didn't volunteer it.

As for starbuckone's follow up example, no, unless your neighbour is a taxi driver by profession and uses his taxi to take you to the doctor's, in which case most likely yes.

Genuinely surprised most people didn't automatically think that it would be.

[Skyline D]

Slight amendment to above - Starbuckone wouldn't be breaking the law by paying a neighbour taxi driver to take him or her to the doctors but the neighbour would be if they didn't declare it.

[venator]

Starbuckone - if it's just the odd lift, no problem.

If it becomes a trade, then yes its taxable.

What constitutes trading is well established in tax law.