VAT on supplying goods to the employees | AccountingWEB

VAT on supplying goods to the employees

Hi to All,

One of the clients called me this morning and asked me very interesting question regarding the VAT.

The business (VAT registered) has Apple's outlet and sells Apple's products like iphones, ipads and computers etc. The employees of the business use the computers/ipads for business and private purposes.

The question is that should the business charge VAT to the employees for their private/business use as treating a normal supply? Apple charges VAT on the products leased/sold to the business.

Please answer me that what would be the VAT implications for the business.


Steve Kesby's picture

Let's start with direct tax    1 thanks

Steve Kesby | | Permalink

I'm starting looking at the direct tax side of things for a reason as you will see.

Making assets available (without transferring ownership) to an employee is a benefit, which might fall within the S.318 ITEPA 2003 exemption (available for business purposes with insignificant private use), otherwise the benefit is the greater of either 20% of the market value or the lease charges actually paid.  If a benefit arises, then to the extent that they are used for business purposes the employees can claim an expense deduction under S.365.

If you do buy things and transfer ownership, the benefit is cost (plus VAT) if you supply it new, or the greater of either cost (including VAT) less the previous 20% charges or market value when transferred.

Because the assets are being used to remunerate employees, the input VAT on the leasing charges is fully recoverable, as it's been incurred for the purposes of the taxable business (subject to the caveat on the iPhones below).

Letting the employee's have use of the assets (without transferring ownership) is the supply of a service, rather than a supply of goods, so if there's no consideration (a salary sacrifice would be consideration), there's no VAT.

If you transfer ownership, that's a supply of goods and there is a deemed consideration of original cost on which VAT is due.

For the iPhones there would be a restriction on input VAT recovery for any usage charges under Business Brief 14/99.


neileg | | Permalink

Hasn't Brief 14/99 been superceded by 02/12?

zaidi | | Permalink

I appreciate what you said but HMRC has a different opinion. please check the above link and advise me further on it.

Thank you

Steve Kesby's picture

@Neil    1 thanks

Steve Kesby | | Permalink

No.  Brief 02/12 refers to the direct tax treatment of smartphones under S.319 ITEPA 2003.  Brief 14/99 refers to the VAT treatment of mobile phones where there is private use be employees.

Steve Kesby's picture

@zaidi    1 thanks

Steve Kesby | | Permalink

That's not a different opinion.

Private use in the context being referred to means private use by the trader.

I further inquired with my

zaidi | | Permalink

I further inquired with my client. His emloyees are doing salary sacrifice say £100pcm. My question is for example if the computer's cost is £1000 and employees are doing salary sacrifice £100 per month that how can i calculate the VAT?

Steve Kesby's picture

1/6th    1 thanks

Steve Kesby | | Permalink

The VAT element of the £100pcm salary sacrifice is £16.67.

I really appreciate you Steve

zaidi | | Permalink

I really appreciate you Steve,

No VAT would be payable on the remaining cost of £900?

Would this VAT on salary sacrifice be continued untill when?

One final point, employees use this machine 25% private and 75% for business, does it make any difference to the VAT calculations under salary sacrifice?

Sorry Steve if I am bothering you.





Steve Kesby's picture

Salary sacrifice

Steve Kesby | | Permalink

All the time the employees have use of an asset, the employer is providing them with a service for VAT purposes. The salary sacrifice is the consideration. So all the time that there's a supply of a service for a consideration, VAT will be due.

salary sacrifice

shaun king | | Permalink

HMRC's position in relation to VAT and salary sacrifice is set out in Revenue Brief 28/11 and as Steve says VAT is due on the value of the sacrifice. One further point to consider is whether your client sells the computers to his staff at the end of their useful life as their is a further VAT consideration there.

Goods provided at cost

stevemw | | Permalink

Where do we stand regarding benfits and VAT on supplying goods to our staff at cost+VAT?

How should this be recorded in the accounts?

Thank you.