Gifts & samples: VAT repayment claims?

When can I reclaim VAT on gifts and samples? 

This is a freeview 'At a glance' guide to VAT repayment claims on gifts and samples.

As a result of an 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 found that the UK was treating VAT on gifts incorrectly.

From 19 July 2011, samples of products that are given away free will not create a VAT liability. 

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: a reminder of the rules

If you recover VAT on goods that you then use as gifts you may have to pay output VAT on the cost price 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 the 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 that qualifies as a sample:

• A sample was defined by the ECJ as:
  • a specimen of a product used in promoting the sales of that product
  • which allows the characteristics and qualities of the product to be assessed without resulting in final consumption, other than where final consumption is inherent in the promotional transaction.
• HMRC have adopted the ECJ definition.
• 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.