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.
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