VAT due on gift to top-performing employee?
Q. Our business trades as a car dealership and we have given a case of champagne to our best-performing salesperson. As we understand it, we can claim input tax on the cost of the champagne because each individual bottle cost us less than £50. Is this correct?
A. Unfortunately, your interpretation of the law is incorrect. Firstly, you can claim input tax on the purchase of the champagne because it is an expense that relates to your business; the purpose of the expense is to reward an employee who has performed exceptionally well. This assumes that you have a tax invoice and the supplier is registered for VAT.
However, the legislation states that if the value of a business gift given to an individual person exceeds £50 in any rolling twelve-month period, you must account for output tax on the value of the gift, i.e. based on what you paid for it. This VAT is declared on the return that includes the date when you give the champagne to your employee. The value of the gift is clearly more than £50.
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