A contra deal is an agreement where two businesses swap goods or services instead of paying cash, so each side's work pays for the other's. The term comes from advertising, where radio stations and publishers traded airtime or space for goods. It can be useful marketing on a budget, but HMRC still treats each side as a sale.
What is a contra deal?
One of the clearest definitions turns up in a music licensing agreement for community radio. The PPL PRS joint licence defines contra deals as "the provision of goods or services other than programme material in return for advertising airtime or sponsorship credits", with prizes left out.1 So if a local garage services the station's van and the station runs the garage's ads in return, nobody sends a cash invoice.
The Office québécois de la langue française, which is the official French-language terminology body in Quebec, gives "contra advertising" and "barter advertising" as the English names for the same arrangement, and it adds a detail most guides skip. When the two sides aren't worth the same, the contract can include a percentage paid in money.2 In other words a contra deal doesn't have to balance perfectly, and you can swap most of the value and settle the gap in cash.
Accountants use "contra" in a slightly different sense too, to mean offsetting what a customer owes you against what you owe them because they're also one of your suppliers. HMRC calls these set-offs and expects VAT-registered businesses to account for each supply separately, "even if no money changes hands".3 For most small businesses today, though, a contra deal just means a swap of services, and that's the sense we'll stick with here.
How does a contra deal work between two businesses?
Take a made-up example. A freelance bookkeeper needs a new website, and a web designer needs their books sorted before self assessment, the yearly tax return sole traders send to HMRC. According to a guide from the accounting firm Better Account, freelance bookkeepers in the UK charged between £25 and £40 an hour in 2025.4
Suppose the designer would normally charge £1,200 for the site and the bookkeeper charges £30 an hour. At that rate the website is worth 40 hours of bookkeeping, which is a good deal more than a sole trader's year-end books usually take, so the bookkeeper might also do the monthly books for a year, or the two might swap part of the value and settle the rest in cash.
We'd treat that £25 to £40 figure with some care. The guide says London rates are considerably higher, and it's a firm's own guide rather than an independent survey, so use it to start the conversation and then turn both sides into hours at each person's normal rate before you agree anything. After that we'd write down the scope, meaning exactly what's included, such as how many pages, how many rounds of changes, which months of bookkeeping and what happens if one person finishes early.
How do you value a contra deal?
For VAT, the sales tax registered businesses add to their prices, HMRC's answer is in its guidance on part-exchanges, barters and set-offs. A barter creates two supplies, one in each direction, and "you must both account for VAT on the amounts you would each have paid" if the deal had been paid in money.3 HMRC's own example is a garage repairing a newsagent's van in return for cancelling last month's newspaper bill. For part-exchanges it describes a sports shop selling a £200 surfboard for £100 plus the customer's old board, with VAT worked out on what the customer would have paid in money.
Startups.co.uk puts it a little differently, saying income is measured at fair market value, which it describes as "what you would charge if you were selling the item or service for cash".5 HMRC's internal VAT valuation manual goes further, and on the face of it the two don't quite match, because it says the test is what this particular customer would have had to pay in money. In its example a trade customer's supply is valued at £95, while a retail customer pays £100.6 Using open market value instead, both would be valued at £100.
For a small swap the gap is rarely big, but it does tell you what to do. We'd value your side at the price you'd really charge that kind of customer, backed by your price list or recent invoices, and write the figure down on the day you agree. A number you can show from your own records is far easier to defend than one picked to make the swap look even.
Recording a contra deal for tax and VAT
Neither business can leave a swap out of the books. Startups.co.uk says sole traders should report the fair value of barter deals on their self assessment return and keep records of what was exchanged, what it was worth and when.5
There are three figures from GOV.UK we think anyone doing swaps should know. You must register for VAT if your taxable turnover for the last 12 months goes over £90,000.7 Because a swap is treated as a sale, a run of contra deals can quietly bring you closer to that line. The trading allowance lets individuals earn up to £1,000 a year of trading income tax free, and it's measured on gross income, the total before any expenses come off.8 A small side business might not realise that a £600 swap can count towards it. Sole traders also have to keep records for at least five years after the 31 January deadline for the tax year they relate to.9
If either business is VAT registered, the rules on tax points apply as well, and HMRC says the tax point is the date of the invoice, or the date you enter a set-off in your books if you don't invoice.3 This is general information rather than advice, so we'd always get your accountant to check how a particular deal should go in your books before you file.
When a swap suits marketing on a budget
The radio version shows when these deals work best, because the station is trading airtime it has spare for something it would otherwise have to buy. Small businesses get the best swaps the same way, so we'd swap when you have spare time, like a quiet midweek or a slow January, and the other person's service is something you'd otherwise pay cash for. A photographer with empty diary days who needs a contract checked is a good fit. A bookkeeper taking on a swap in the middle of the January self assessment rush probably isn't, because every hour spent on the swap is an hour they can't bill in cash.
We'd steer clear when you need the money to pay your own bills, when you'd never have bought the other side's service anyway, or when the values are so far apart that the deal needs a big cash top-up. And don't let a swap drift, because in our experience the arguments come from unclear scope much more often than from tax.
Exchange of Services is set up for this kind of trade. Members list what they offer in a public directory of businesses and their services, post requests on the exchange board and agree the details in a message thread. It's free, with no credits, fees or commission, and the FAQ explains how exchanging works.
Putting a price on your first swap
A contra deal works when both sides know what their work is worth in pounds and agree it in writing before they start. If you've got spare hours and a service you keep putting off buying, a swap can sort out both, and you record it like any other sale. Join Exchange of Services free and list the services you offer.
Frequently asked questions
Is a contra deal taxable in the UK?
Generally, yes. HMRC treats a swap of services as a sale, so both businesses usually record the value of what they supplied as income, priced at what it would have cost in money. Bartering doesn't get you out of income tax or VAT, so talk to your accountant about how a specific deal should be recorded.
Do I need to charge VAT on a contra deal?
If you're VAT registered, yes. GOV.UK guidance says a barter creates two separate supplies, and each registered business accounts for VAT on the amount the other side would have paid in money, even when no cash changes hands. Your accountant can confirm how that applies to you.
What is the difference between a contra deal and barter?
In everyday use they mean much the same thing, swapping goods or services instead of paying cash. "Contra deal" comes from media and advertising, where airtime or space was traded for goods, while "barter" is the broader word. HMRC deals with both under the same barter rules.
What does contra mean in accounting?
In accounting, a contra or set-off means offsetting what a customer owes you against what you owe them when they're also one of your suppliers. HMRC says VAT-registered businesses still account for VAT on each supply, even if only a net amount is paid or no money changes hands at all.
Does a contra deal need a written agreement?
We'd always have one. Write down what each side will deliver, the value in pounds, the dates and what happens if one side doesn't finish, which settles arguments about scope and gives you the records HMRC expects. For anything large or complicated, ask a solicitor to look at it.
Sources
- Law Insider: Contra Deals definition (PPL PRS Joint Licence for Community Radio) lawinsider.com
- Office québécois de la langue française: contrat-échange (contra advertising) vitrinelinguistique.oqlf.gouv.qc.ca
- GOV.UK: VAT on part-exchanges, barters and set-offs gov.uk
- Better Account: What is the hourly rate for a bookkeeper in the UK betteraccount.co.uk
- Startups.co.uk: How is tax applied to bartering? startups.co.uk
- HMRC VAT Valuation Manual: VATVAL06110 Non-monetary consideration, part exchange gov.uk
- GOV.UK: Register for VAT, when to register gov.uk
- GOV.UK: Tax-free allowances on property and trading income gov.uk
- GOV.UK: Business records if you're self-employed, how long to keep your records gov.uk
