Contra deals, sometimes called contra arrangements or non-cash exchanges, remain a useful tool for UK businesses to trade goods or services without direct cash payments. As we move through 2025, it is important to revisit how the legal, accounting, and tax landscapes may affect how you structure and report these deals. This guide highlights recent developments and key considerations.
What is a contra deal in a UK context?
A contra deal is essentially a barter arrangement between two parties where goods or services are exchanged rather than paid for in cash. Within UK commercial practice, contra deals are often structured so that each party invoices the other, assigning a fair market value to the goods or services provided, so that both sides trade in a way that can be accounted for.
Because each party makes a supply to the other, HMRC treats contra deals in the same way as ordinary sales. Businesses must recognise value, account for VAT if registered, and reflect the transactions in their books (HMRC, 2025).
In practice, contra deals are often used to preserve cash flow, make use of excess capacity or inventory, or strengthen B2B collaborations.
What has changed in 2025?
HMRC focus on tax compliance
HMRC continues to monitor contra and barter transactions closely to ensure that they are not used to hide value or avoid tax. Even if no money changes hands, each supply must still be treated as taxable and properly documented. HMRC guidance makes clear that businesses must trade at a fair and reasonable price, which means undervaluing your side of the deal to reduce tax is not permitted (HMRC, 2025).
Stronger emphasis on written contracts
Legal experts increasingly stress that barter and contra deals should be recorded formally. Relying on handshake agreements is seen as risky in 2025. Key contract items should include clear descriptions of what is being exchanged, how it is valued, delivery deadlines, remedies if one party defaults, and provisions for data or intellectual property rights. A written contract gives certainty to both parties and protects against disputes (Sprintlaw UK, 2025).
VAT and tax point rules remain critical
The VAT rules covering barter and set-off continue to apply. In a contra deal, each party must account for VAT on the value of what they supply. Businesses must also pay close attention to the correct “time of supply” or tax point, particularly when invoicing or when debts are set off between the parties (HMRC, 2025).
Accounting treatment through contra accounts
Many UK businesses use accounting software such as Sage or Xero to manage contra entries. Best practice is to use a contra account to net off mutual invoices. This ensures that the profit and loss account is not distorted by non-cash movements and that the exchange is transparent. A contra account should always return to zero once both sides of the transaction are complete (Caseron, 2025).
Valuation remains under scrutiny
HMRC and auditors may challenge valuations, particularly when contra deals take place between related parties. It is therefore more important than ever to agree on an arm’s length value and be able to justify it, for example by referring to comparable market rates (Sprintlaw UK, 2025).
Non-performance risks
A common risk with contra deals is that one party may deprioritise contra work compared with paid work. This can result in late delivery or lower quality outcomes. Including service level standards and clear performance obligations in the contract helps prevent this issue (Progressive Legal, 2025).
Checklist for businesses in 2025
- Use a proper written contract with clear deliverables, values, and remedies.
- Value the exchange fairly using commercial rates.
- Issue invoices for the agreed value even though no money changes hands.
- Account for VAT correctly and on time if registered.
- Use a contra account in your bookkeeping to net off invoices.
- Keep complete records, including contracts, invoices, valuation evidence, and correspondence.
- Plan for non-performance with exit or remedy clauses.
- Seek advice from an accountant or tax professional before entering into a significant contra deal.
Final thoughts
Contra dealing continues to offer UK businesses a practical way to conserve cash, form partnerships, and make effective use of available resources. However, with HMRC focusing on compliance and the need for more formal documentation, 2025 is not the year to cut corners. Businesses that treat contra deals with the same professionalism as cash-based transactions will benefit most while avoiding unnecessary tax or legal risk.