VQOTW: Input Tax on business gift

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 clients 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? 

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. 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 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.

Please share this article with your clients

Our team of expert consultants have a wealth of experience and can also provide a written consultancy service to support your practice, like having your very own tax and VAT department.

Why not see what My VIP Tax Team can do for your practice, call 0844 892 0251 or vip@cronertaxwise.com to find out more.

Back to Community

VAT Advisor
0844 892 2470

Priyesh has worked as a VAT Compliance Officer for HMRC since 2013 prior to joining Croner Taxwise. He initially worked in Small and Medium Enterprises before moving on to Wealthy & Midsize Businesses in 2014 where he gained a broad understanding of VAT and trained new VAT entrants.

My VIP Tax Team VAT question of the week: The sale of dog food
My VIP Tax Team VAT question of the week: Post-Brexit Import VAT Procedures
My VIP Tax Team VAT question of the week: Input Tax on business gifts