VAT case is a reminder of position on staff benefits

French Connection v HMRC [2015] UKFTT 173 (TC) concerned a UK retailer which provided a clothing allowance to staff, which was then used to purchase clothing that they were required to wear whilst working.

HMRC argued that the supply gave rise to a VAT liability; conversely, the company argued that as the clothing constituted a uniform which was provided for a business purpose it should be exempt.


The First Tier Tribunal said it was irrelevant that the clothes might constitute a uniform, as the clothing supplied was part of the trading stock.  Business assets had therefore been provided for nothing which triggered a supply, and VAT had to be accounted for using replacement cost.


It is unlikely that retail clothes, suitable for wearing outside of work hours, would constitute a uniform in the true sense – i.e. an identical one that all staff wear.

Recap of rules

  • Businesses supplying services are not usually charged to output VAT where a supply of services is made for no charge.
  • Businesses supplying goods without charge (i.e. gifts) do have to account for VAT on the output.
  • A limited exemption exists for circumstances where gifts for business purposes to any single person in a 12 month period do not exceed £50 in total.