Carousel_Arrow Chat IHT_trust_wills IR35 Login Mobile Menu Share Share Email SubMenuMobile VAT View_Gallery View_List capital_allow Triangle 2 Copy Close construction cyberpro employment_tax_shares emplyer_solutions entrepreneurs_corps fee_protect Go grant_fund Group i_Clock i_Consult i_Done i_Eligibility_Tick i_Enter i_Filter i_HMRC i_Negative i_Play i_Plus i_Reset i_Support_Legal i_Support_TaxDesk i_Support_VAT i_Tick noun_marketing_1872083 noun_online_2126759 i_download i_meet Group Copy 24 Group 18 noun_electrical_1240755 copy noun_Technology_2125422 noun_Science_2031115 i_tick_bullet_block international_tax patent_box private_client property_sdlt r_and_d reliefs_incentives Search specialist_tax status tax_indemnity valuation
icon_cookie Created with Sketch. Cookies

We use cookies on this website. You can choose to accept them all or to opt out of some. You can change your consent at any time by opening this window again

This includes all necessary technical and session cookies, plus performance, tracking and persistent cookies.

If you choose this option, we will block all performance, targeting and persistent cookies. Many parts of this site will then not work.

Please read the full details in our Cookie Statement.
Markel Tax

02 Sep 2019

VAT recovery on gifts bought for a charity

Question:
My client has purchased a watch for £10,000 + VAT for the sole purpose of donating it to a charity. The charity is holding a raffle and this watch will be one of the prizes. My client is not connected to this charity in any way other than supporting the cause it works towards. Can my client claim the VAT back on these goods?

Answer: 
If goods were bought specifically to give away, and doing so has no demonstrable business purpose / benefit (for example to a relative, friend or for your own personal use) they have been acquired for a non-business purpose and the VAT incurred is not input tax and therefore cannot be claimed. On the plus side, no output tax will be due on their disposal.
 
If the goods are being given away for business purposes (e.g. to be able to promote the business as a supporter of the charity), the input tax on the purchase would be recoverable in line with the normal rules.
 
If you give away goods and were entitled to recover the VAT you were charged on them as input tax, but receive no payment or any other form of consideration for them (including, for example, advertising of your business by the recipient), HMRC would view these as “business gifts”. As such, output tax is due when you give them away based on the £10,000 cost value of the goods.
 
This is because you have to account for output tax on business gifts made to a given recipient if:
 
● the value of gifts given to that person in any 12 month period exceeds £50 (excluding VAT), and
● you were entitled to recover the VAT back on the purchase as input tax.
 
As the watch cost is over £50, the net VAT effect is the same whether it is bought for non-business purposes (no VAT recovery), or bought for business purposes but given away (full VAT recovery but output tax of the same amount).
 
Interestingly, if the charity had been selling the watch, rather than using it as a raffle prize, the deemed supply under the gift rules would be zero-rated, but you would still need to be able to demonstrate that business purpose for the VAT recovery.

Here to help
With more than 75 highly skilled tax and funding specialists, advising on over 2,000 complex tax issues each year, we work with your practice to provide up to date, practical solutions. If you have a client in a similar situation, or have a tax question of your own, we're here to help on 0345 223 2727. Or to find out more about our services, email taxmarketinguk@markel.com
 
Tagged Ask Markel
Next article in series

21 Aug 2019

Have your say: VAT - Partial Exemption and Capital Goods Scheme

Partial Exemption computations have always been difficult at the best of times. The Capital Goods Scheme has been an equally awkward complication. The government is looking to simplify these regimes and has issued a ‘call for evidence’.