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Markel Tax

02 Sep 2019

VAT recovery on gifts bought for a charity

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?

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.

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