VAT - 18.04.2011

VAT refund on samples

New rules

One of the changes that will be included in this year’s Finance Act is to bring the UK VAT rules for business samples into line with other countries in Europe. Under the current rules you can only provide one VAT-free sample per person or business in any year. After that you’re required to charge VAT as if you had sold the sample product at its usual selling price. What’s more, the Taxman’s limited exemption for the first sample is restricted to those given to existing or potential customers. But now these rules are to be scrapped.

All change

The new legislation will remove the limitation on the number of samples you can give. It will also extend the exemption to other parties who could influence your sales, e.g. marketing agents, testing companies etc.

Strict control

The Taxman was unimpressed with the European Court of Justice’s (ECJ) decision but he’s having to take it on the chin. However, it’s clear from a recent statement that he will apply the new rules strictly (see The next step). You will only be allowed to avoid accounting for VAT on samples where:

• they are given completely free of charge
• are strictly intended for marketing purposes; and
• are from a current product range. So you can’t give away old stock VAT-free unless you intend it to be a business gift and it meets certain conditions.

Trap. Where you give away goods your company produces as business gifts, they will only be VAT-free where their total cost value is less than £50 per year per person. It’s therefore necessary to keep a running total of the value of business gifts and charge VAT where the limit is exceeded.

Delayed legislation

Although the ECJ judgment was made last year, it has taken until now for the wheels to be set in motion to alter the UK legislation. In fact, it won’t officially take effect until the middle of July this year. But there’s some good news.

Tip 1. The Taxman has agreed that because his existing rules are out of step with EU law you can reclaim any VAT you have accounted for on samples going back up to four years prior to your current VAT return period. You should also stop accounting for VAT on samples from now on.

Tip 2. Where the total value of VAT you are reclaiming is less than £10,000, you are not required to send a separate claim to the Taxman. All you need do is amend your next VAT return to reduce the amount of output tax (Box 1 of the form), by the amount you’re reclaiming. You should also adjust the turnover figure in Box 6.

Larger amounts

In the unlikely event that your claim for a refund exceeds the £10,000 limit, you will have to write to the Taxman and provide him with full details of how you worked it out.

For a link to the Taxman’s statement on the ECJ decision, visit http://tax.indicator.co.uk (TX 11.14.06).