Bartering: doing business without spending money

If your revenue is down, you will have less money available for your business. There may be any number of reasons for your lower revenue, including inflation, higher costs, or a lack of staff. You can choose to lend money to cover the cost of goods and services. Alternatively, you might come up with a more creative solution, including bartering. This way, you will not actually spend any money. This article explains what arrangements you must make to facilitate this, and what the tax implications will be.

Bartering could be worth your while. You do need to record the terms in a contract, make sure both parties are satisfied with the value of the barter, and make sure you send out the invoice, including VAT. You will keep cash in your business, enter into new partnerships, and continue running your business.

What does bartering involve?

Bartering means you provide products or services without any money changing hands; that is, without you or your trading partner paying anything. You can decide on the value of the services or products together and this value must be equal.

Examples of bartering

If you have less funds available due to rising costs, bartering might provide an opportunity. What are some of the items you can barter? Here are some examples:

• An online influencer (in Dutch) demonstrates products on YouTube, Instagram, or another social media channel, and receives products in return.
• A hotel pays its food and beverage suppliers in overnight stays or access to meeting facilities.
• A copywriter does a job for a website designer, who returns the favour by creating the copywriter’s website.
• A plasterer does a job for a garage, and the garage then does maintenance on his van.
• A blogger is permitted to use wellness facilities or 3-course dinner and, in exchange, describes their experience on their blog.
• A sporting goods shop supplies clothing to a local football club through a sponsorship deal. In exchange, the club prints the company name on its jerseys and installs an advertising sign on the side of the field.

Advantages

Bartering does not involve a financial transaction, because you are not transferring funds. You will be able to keep your money in your bank account, so that you will save money. You can use these funds to invest in your business or cover costs. Your network will also grow if you engage in bartering. You will get to cooperate with current and new partners.

Disadvantages

While bartering will not cost you anything, you will also not receive money for your services or goods. In addition, you will need to assess the value and quality of the return offer in advance. This might be tricky if you are dealing with someone you do not know well. With business owners you already work with, you will know what to expect. You will also need to consider the administrative obligations involved in bartering, such as a contract, invoices, and processing in your administrative records.

The steps involved in bartering

If you intend to engage in bartering, you will need to complete the following steps:

1. Determine the value

If you engage in bartering, you will need to work with your partners to determine the economic value of the trade in euros. The economic value is the amount that is satisfying to both the buyer and the seller. The sales price applies as a basis for the value of the goods or services. The value of the products or services you barter must be the same. You should regard this as a regular business transaction, so send a proposal and a copy of your general terms and conditions.

2. Setting out terms in a contract

Set out the terms in a contract, or in any case in an email. This will help you avoid any problems. You should record the following data:

• The company details of both parties, along with the date and signature.
• A description of the goods or services to be bartered.
• The value of the goods or services. The sales price is the basis for the agreed barter value.
• The period during which the goods or services are delivered or provided.
• The agreement to invoice the goods or services on time by both parties.

3. VAT (turnover tax)

While bartering does not involve the exchange of money, VAT is charged, and you must record this VAT in your VAT return. You can calculate the VAT on the value of the product or service received. The value is equal to the value of the product or service you offer in the exchange. Calculating VAT involves the following steps:

• Determine the value of the bartered product or service.
• Determine what rate applies in this case: 0%, 9%, 21%, or an exemption.
• Calculate the VAT rate.

4. Charging VAT when doing international business

If you conduct business with companies based outside the Netherlands, you will need to comply with international VAT rules.

• When delivering goods to a business located in another EU Member State, a VAT rate of 0% applies. Your bartering partner will then calculate VAT according to the rate applicable in their country, and will also pay tax in that country.
• When delivering most services to businesses located in the European Union, you must send an invoice without VAT and write ‘btw verlegd’ (‘VAT reverse-charged’) on the invoice. The business to which you are supplying your service will pay VAT in their country.
• When delivering products outside the EU, the basic rule is that you must charge 0% VAT.
• When delivering services to buyers outside the EU, you must determine with a tool (in Dutch) provided by the Dutch Tax Administration whether the service is taxed in the Netherlands or the other country.

5. Sending invoices

You must send each other an invoice for the goods delivered or services provided, subject to the regular VAT rate. You must process the invoice sent in your accounts under income and the invoice you receive from your bartering partner under expenses. Since you can offset the invoice you receive for the barter against the costs, the result is net zero (neutral).

Finding business partners

Business partners with whom you have been working closely for many years are potential bartering partners. You know you can rely on each other and what kind of quality you can expect. You can also make new contacts and expand your business network that way.

Since 2002, Tradeexchange (in Dutch) has been bringing together business owners for bartering.

Sharing economy versus business bartering

Business bartering works slightly differently than sharing-economy platforms. In bartering, you do not pay money for products or services, but do receive a product or service. The sharing economy involves usage rather than ownership. While you may, in some cases, be able to pay something in consideration, it is more common to pay with money when you are using a platform. For example, if you are using an electric scooter, a car, or a camper through a sharing platform, you will pay an amount for this. The website deeleconomie in Nederland (in Dutch) contains a list of more than 150 trading and sharing platforms.

Save more with bootstrapping

Besides business bartering, you can also save money and free up cash for your business in other ways. The collection of saving methods is called bootstrapping. This is especially useful if you are looking for more money but don't want to borrow. Instead, make the most of resources that are already there. Consider sharing business spaces, using trainees, or leasing instead of buying.