Q&A: input tax on business gifts

In this week’s Q&A, Priyesh Mistry, VAT advisor at Croner Taxwise, considers whether VAT can be reclaimed on gifts from a client received by a supplier

Q. My client wholesales household cleaning products, and during the pandemic they did a stellar job in supplying personal protective equipment, disinfectants and hand sanitisers to local residents and businesses. A steel merchant gifted heavy-duty shelving to them, whilst a home appliance retailer donated a new PC and till system – no invoices were provided. Both of these items are used within the client's fully taxable business.

Had the wholesaler ordinarily purchased these items they would have been able to recover the associated input tax. Is there a way in which the client can recover the input tax on these gifts without valid VAT invoices?

A. Businesses will need to account for output tax at cost when they give away business gifts. VAT Notice 700/7 sec 2.3 states, ‘You must normally account for output tax on the total cost value of all the gifts where the following apply:

  • the total cost of business gifts given to the same person in any 12-month period exceeds £50
  • you were entitled to claim the VAT on the purchase as input tax.’

The steel merchant and the retailer should therefore have accounted for output tax on the cost value of the goods when giving the goods away, but they cannot raise a VAT invoice. As output tax is accounted for it would be unreasonable to disallow the input tax, especially as the client has used the gifts within their trade.

Therefore, HMRC accept that if a recipient of a gift is VAT registered and they use that gift within their business, the corresponding input tax is recoverable subject to the normal rules.

HMRC VAT Notice 700/7 paragraph 2.4 states: ‘In order to provide the recipient with acceptable evidence to support a claim for recovery of input tax, you may use your normal invoicing documentation and include the following statement:

‘Tax Certificate – No payment is necessary for these goods. Output tax of £XX.XX [insert amount] has been accounted for on the supply.’

If the client can obtain a document showing the above statement, they can recover the input tax on the gifts.

About the author

Priyesh Mistry is a VAT advisor at Croner Taxwise

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