As a result of a recent option by the Advocate General some businesses may be able to reclaim VAT on samples, previously declared as business gifts.

The European Court of Justice in the case of EMI Group C-581/08 has found that the UK is not treating VAT on gifts correctly.

Where a business has declared VAT on samples (in EMI's case these were CDs sent out to radio stations and critics) on the basis of the gift rules and these were in excess of £50, or when a series of gifts have been made to the same person over the last four years it should consider making a repayment claim.

Gifts and samples: a reminder of the rules

If you recover VAT on goods which you then use as gifts, or for samples, you may have to repay that VAT to HMRC.

  • The gift of goods, whether for consideration or not, is a supply for VAT purposes.
  • If consideration is given, whether or not it is a market rate, that shall be the consideration for VAT purposes.
  • If no consideration is given, the deemed consideration is usually taken as the cost of replacing those goods.

There are exemptions from the above deemed supply rules:

  • If the gift of goods is made in course or furtherance of the business.
  • The cost to the donor is £50 or less, and
  • The aggregate gifts to the same person in any rolling 12-month period is £50 or less.

HMRC will not generally accept that gifts to family members will fall within the above exemption, as they will not be seen as made in the course or furtherance of business.

The rules will also not apply where there is a gift qualifies as a sample:

  • A sample is a specimen of a product used in promoting the sales of that product.
  • Discontinued items cannot count as a sample.
  • If the quantity provided is excessive, i.e. more than what is needed to assess the item, it will not qualify as a sample.



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