Tag Archives: vat-gifts

VAT and influencers

By Marcus Ward 14 March 2024

A Warning

There has been a great deal of debate on the subject of VAT and influencers, with HMRC issuing assessments for underdeclared output tax on “gifts” received by them.

What is an influencer?

An influencer is someone who has certain power to affect the purchasing decisions of others because of their; authority, knowledge, position, or relationship with their audience. These individuals are social relationship assets with which brands can collaborate to achieve their marketing objectives.

In recent years the growth of social media means that influencers have grown in importance. According to recent statistics, the projected number of global social media users in 2023 was 4.89 billion. This is a 6.5% rise from the previous year.

What is the VAT issue?

Business gifts to influencers

A business is not required to account for VAT on certain dealings if they meet certain conditions. For free gifts, the condition is that the total cost of all gifts to the same person is less than £50 in a 12-month period. Further, if the goods are “free samples” – used for marketing purposes and provided in a quantity that lets potential customers test the product, then the £50 rule does not apply. If an influencer receives free gifts or samples, there are no VAT implications for them.

HMRC Action

However, we understand that HMRC has decided that, in the majority of cases, the supply of goods to influencers were not ‘free gifts” but rather consideration for a taxable supply of marketing or advertising. They were also not considered free samples as, generally, influencers would not be in the position to test the goods, having no expertise in the field. It is also concluded that influencers, in most cases were “in business“.

The payment for the marketing, promotion or advertising services (the VAT treatment is similar, regardless of how the services are categorised) is by way of the supply of goods, rather than monetary consideration. That is; consideration is flowing in both directions. Consequently, output tax is due on this amount if the influencer is, or should be, VAT registered.

What is the value of the supply?

Non-monetary consideration

Non-monetary consideration includes goods or services supplied as payment, for example in a “barter” (including part exchange) agreement. If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration. Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply is deemed to be for such part of the consideration as is properly attributable to it.

In determining the taxable amount, the only advantages received by a supplier that are relevant are those obtained in return for making the supply should be recognised. Non-monetary consideration has the value of the alternative monetary payment that would normally have been given for the supply.

VAT Registration

If an influencer receives gifts valued at over £90,000 in any 12-month period, or these gifts plus other monetary consideration, VAT registration is mandatory.

VAT – A Christmas Tale

By Marcus Ward 6 December 2022

Well, it is nearly Christmas…. and at Christmas tradition dictates that you repeat the same nonsense every year….

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities. May I explain what I do and then you can write to me with your advice? If you think a face to face meeting would be better, I can be found in most decent sized department stores from mid-September to 24 December.

First of all, I am based in Greenland, but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Where do I belong? Am I making supplies in the UK? Do I pay Customs Duty?

If I do this for philanthropic reasons, am I a charity, and if so, does that mean I do not pay VAT?

I have heard that giving vouchers can be complicated, I think I will need help with these gifts.

The toys are of course mainly for children and I wonder if zero rating might apply? I have heard that small T shirts are zero rated so what about a train set – it is small and intended for children. Does it matter if adults play with it? My friend Rudolph has told me that there is a peculiar rule about gifts. He says that if I give them away regularly or they cost more than £50 I might have to account for output tax. Is that right?

My next question concerns barter transactions. Fathers often leave me a food item such as a mince pie and a drink and there is an unwritten rule that I should then leave something in return. If I’m given Sainsbury’s own brand sherry, I will leave polyester underpants but if I’m left a glass of Glenfiddich I will be more generous and leave best woollen socks. Have I made a supply and what is the value please? My feeling is that the food items are not solicited so VAT might not be due and, in any event; isn’t food zero-rated, or does it count as catering? Oh, and what if the food is hot?

Transport is a big worry for me. Lots of children ask me for a ride on my airborne transport. I suppose I could manage to fit twelve passengers in. Does that mean my services are zero-rated? If I do this free of charge will I need to charge Air Passenger Duty? Does it matter if I stay within the UK, or the EU or the rest of the world? What if I travel to every country? My transport is the equivalent of six horsepower and if I refuel with fodder in the UK will I be liable for fuel scale charges? After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home – is this non-business? Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay tax. Please comment.

May I also ask about VAT registration? I know the limit is £85,000 per annum but do blips count? If I do make supplies at all, I do nothing for 364 days and then, in one day (well, night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration? If I do need to register should I use AnNOEL Accounting? At least I can get only one penalty per annum if I get the sums wrong.

I would like to make a claim for input tax on clothing. I feel that my red clothing not only protects me from the extreme cold, but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts, I think I should be able to claim for red dress. And what about my annual haircut? That costs a fortune. I only let my hair grow that long because it is expected of me.

Insurance worries me too. You know that I carry some very expensive goods on my transport. Play Stations, mountain bikes, i-Pads and Accrington Stanley replica shirts for example. My parent company in Greenland takes out insurance there and they make a charge to me. If I am required to register for VAT in England will I need to apply the Reverse Charge? This seems to be a daft idea if I understand it correctly. Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

And what about Brexit? I know the UK has already left the EU, but does this affect me? What about distance selling? How do I account for supplies to and from the EU? Will there be Tariffs? Do I have to queue at Dover?

Next, you’ll be telling me that Father Christmas isn’t real……….

HAPPY CHRISTMAS EVERYBODY!

VAT: Input tax recovery – whether a taxable supply. The Door Specialist case

By Marcus Ward 9 June 2021

Latest from the courts

In the First Tier Tribunal case of The Door Specialist Limited (TDSL) the issue was whether an HMRC assessment for overclaimed input tax was correct.

Background

The appellant recovered input tax on the import of goods (doors). The company did not sell the doors, but simply gave the goods (no consideration provided) to a separate company called Just Doors (JD). It was JD who made the sales of the doors to third party customers. TDSL and JD were under common ownership but no VAT group in place at the relevant time. TDSL was VAT registered as it made separate, unrelated taxable supplies of property rental

Arguments

HMRC contended that as there was no onward taxable supply of the doors by TDSL, no input tax was recoverable per The VAT Act 1994 section 24 (1). TDSL relied on HMRC’s published guidance (Notices 700 and 700/7) in relation to gifts and proposed that it would be proper to assess for output tax on the “supply” to JD rather than denying the input tax claim.

Issues

The issues may therefore be summarised as whether;

the relevant goods were used for the purpose of any economic activity by TDSL
the doors could be treated as business gifts as contended by the applicant such that the input tax was recoverable.

Further cases on economic activity/business here, here and here

Decision

It was decided that as there was no direct and immediate link between the purchase of the goods and any onward taxable supply in the course of business or economic activity by TDSL (as required by the outcome of the cases of BAA Ltd JDI International Leasing Ltd) the disallowance of the input tax was appropriate. The advancement of the business gifts contention did not assist the taxpayer as this was not an economic activity in itself. The appeal was therefore dismissed.

Commentary

A clear example of not considering the VAT implications when carrying out transactions. This tax cost could have easily been avoided if TDSL had sold the doors to JD. As both parties were fully taxable, there would have been no VAT hit. Business gifts and promotional activities are also often a complex area of VAT and as one former colleague once remarked “If you have a marketing department you have a VAT issue”.

VAT treatment of vouchers, gifts and discounts – How business promotions work

By Marcus Ward 25 June 2015

Business promotions are an area of VAT which continues to prove complex. This is further exacerbated by changes to the legislation at EC and domestic level and ongoing case law.

The VAT position is summarised here. Part of this commentary has been taken directly from HMRC guidance on the subject and is the most up to date authority on the matter. I thought it may be useful if the VAT treatment of various business promotion schemes is summarised in one place.

…I recall a statement from an old mentor of mine; “if you have a marketing department you have a VAT problem!”

Summary

Offer	How to charge VAT
Discounts	Charged on the discounted price (not the full price)
Gifts	Charged on the gift’s full value – there are some exceptions listed below
Multi-buys	Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods
Money-off coupons, vouchers etc	No VAT due if given away free at time of a purchase. If not, VAT due on the price charged
Face value vouchers that can be used for more than one type of good or service (multi-purpose)	No VAT due, if sold at or below their monetary value
Face value vouchers that can only be used for one type of good or service (single-purpose)	VAT due on the value of the voucher when issued
Redeemed face value vouchers	Charged on the full value of the transaction at the appropriate rate of the goods provided in return for the voucher

Exceptions for gifts

There’s no VAT due on gifts given to the same person if their total value in a 12 month period is less than £50.

Free goods and services

You don’t have to pay VAT on things like free samples if they meet certain conditions.

Supplies	Condition to meet so no VAT due
Free samples	Used for marketing purposes and provided in a quantity that lets potential customers test the product
Free loans of business assets	The cost of hiring the asset is included in something else you sell to the customer
Free gifts	The total cost of all gifts to the same person is less than £50 in a 12 month period
Free services	You don’t get any payment or goods or services in return

Background

Face value vouchers

Recent changes, radically alter the UK rules for face value vouchers. Face value vouchers are vouchers, tokens, stamps (physical or electronic) which entitle the holder to certain goods or services up to the value on the face of the vouchers from the supplier of those goods or services.

Examples of face value vouchers would include vouchers sold by popular group discount websites, vouchers sold by high street retailers, book tokens, stamps and various high street vouchers.

Single or multi-purpose

The most important distinction for face value vouchers is whether a voucher is a single purpose voucher or multi-purpose voucher. If it is a multi-purpose voucher then little has changed. If it is a single purpose voucher, however, HMRC will now charge VAT when it is issued.

Single purpose vouchers are vouchers which carry the right to receive only one type of goods or services which are all subject to a single rate of VAT. Multi-purpose vouchers are anything else. The differences can be quite subtle.

For example:

a voucher which entitles you to download an e-book from one seller will be a single purpose voucher. A voucher which entitles you to either books (zero rated) or an e-book download (standard rated) from the same seller will be multi-purpose
a voucher which entitles you to £10 of food at a restaurant which does not sell takeaways is probably single purpose, whereas if the restaurant has a cold salad bar and you can buy a take away with the voucher (or hot food) then it would be multi-purpose.

The above means that for single purpose vouchers VAT is due whether the voucher is actually redeemed or not; which seems an unfair result. There is no way to reduce output tax previously accounted for if the voucher is not used.