Promotional samples could earn confectioners VAT refunds
7 October 2010 – UK confectionery company that give away promotional samples could get significant value-added tax (VAT) refunds following the landmark case of HMRC vs EMI Group.
Any UK business which produces goods that it gives away as free samples for promotional purposes stands to gain from a VAT refund. This change in VAT law is expected to be worth thousands or even millions of pounds for some businesses in the luxury food and drinks sectors. However, with each day of delay, the value of the refund will fall.
“Many manufacturers produce goods that they routinely give to clients or potential customers as free samples, perhaps to promote a new product or revitalise an existing one. These organisations may have been paying UK VAT for years on the value of such ‘freebies’, and this treatment has now been determined as incorrect,” says Hannah Dobson, VAT director at Smith & Williamson, the accountancy and financial services group.
“It’s important to note that retrospective VAT claims are capped at four years, so businesses should lodge their VAT claim as soon as possible to maximise the pay-back,” warns Dobson.
This opportunity to recoup tax follows a landmark judgment on 30 September by the ECJ in favour of EMI’s challenge to the UK VAT rules. “In my view, the ECJ’s interpretation of VAT law is completely logical. Food and drink manufacturers up and down the country have regularly given away promotional products. Although no money is received for such promotional goods, the donor business has previously had to pay VAT on the value of the items, putting them heavily out of pocket,” explains Dobson.
The first promotional sample given to a particular individual or an employee within a business has been exempt from VAT for some time. However, subsequent samples going to the same individual or business have given rise to a VAT charge to be paid by the donor. This will now change as a result of the ECJ ruling.
As part of this case, the ECJ also opined on the UK rules in relation to gifts. Currently, the UK requires VAT to be accounted for on business gifts exceeding £50 in value, including where gifts are given to the same person and the cumulative value exceeds £50.
“Whilst the ECJ has confirmed this treatment to be correct, it went on to determine that where business gifts are given to individuals employed by the same organisation, the employer is not the recipient for the purpose of the ‘cumulative value’ test. In other words, if you have given away a number of business gifts to employees of the same organisation and been required to account for VAT on them, you should urgently consider seeking further advice to confirm whether a refund of such VAT, retrospectively for a period of up to 4 years, is available,” adds Dobson.
