What is a contra deal?
A contra deal is where two or more parties exchange goods or services they own to gain something they need, or will benefit from, from each other. In a pure contra deal no money exchanges hands.
What are the benefits of contra dealing?
There are huge benefits to bartering goods or services with other companies. The most important being cash flow. In a barter situation you will not have to pay cash for the goods and/or services you are bartering over as you effectively swap something you own for the same value. Nor will you have to borrow money to buy the goods and services you are now looking to exchange. It is also a great way to move on your unwanted stock to a company that would benefit from it, in return for something you want or need.
Will the transaction be liable for tax?
Yes – VAT and tax liabilities need to be properly accounted for as the transaction will be counted as though cash has changed hands. For more information please visit the relevant Inland Revenue pages here. http://www.hmrc.gov.uk/vat/managing/special-situations/samples.htm
Who can I barter with?
There are no restrictions – you can choose to barter and exchange goods with any individual or company you choose from any industry or geographical location.
What are the risks of contra dealing?
You may feel it would be safer to go through a professional intermediate to ensure that nothing goes wrong with your contra deal. Perhaps the biggest risk is that your bartering partner inflates the value of their assets so you end up swapping goods or services of a higher intrinsic value than you receive. This will result in a loss of profit for your company. Make sure that you also include any associated costs, like shipping and fulfilment, when calculating the value or your asset.
What services do brokers offer?
As well as smoothing the bartering process between parties, a broker can also help with the initial phase of finding like-minded organisations that wish to enter contra deals as an alternative trading method between companies. This can save you the effort of having to research and find potential partners which can be time consuming and risky.