VAT on Gifts and samples – possible claim opportunity

The Advocate General has given his opinion that the UK’s interpretation of the EU rules regarding gifts has been too narrow and is overly restricting businesses.

There is a possibility that businesses can claim a refund of VAT declared on gifts and samples. In addition going forward the requirement for businesses to account for VAT on these items may be ended.

Under present UK rules when a business disposes of its business assets this is treated as a supply and output tax must be accounted for on those disposals. However, exceptions apply in the provision of gifts and samples. Where the value of a business gift, per person, per year does not exceed £50.00, VAT does not need to be accounted for on the supply. Under current rules this is a cumulative total, such that if goods are supplied in succession to the same individual within a 12 month period, the business must track the value of the gifts and account for VAT on the full value of the gifts supplied, once the £50.00 limit has been exceeded.

In the case of samples the current rules state that VAT does not have to be accounted for on the first supply. However, where a person is given a number of samples by the same person, whether it is on the same occasion or on a subsequent occasions, and those samples are identical and do not differ in any material respect from each other, only the first sample may be treated as a sample, all other will fall under the business gift rules.

If the Courts now follow the Advocate general’s opinion there will be opportunities for businesses to recover the overpaid VAT or to get a refund of input tax that has been incorrectly restricted on bought in goods distributed as gifts.

The Court’s decision will not be released until later this year so it is recommended that where appropriate protective claims be submitted in order to protect the periods that may be lost under 4 year capping.

Please call if you have any queries in respect of this article.

Elysian Associates
May 2010