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Business gifts in excess of £50 cost

VAT position when costs under reverse charge

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VAT notice 700/7 states a business must account for VAT on business gifts where the following apply:

  • the total cost of business gifts given to the same person in any 12-month period exceeds £50
  • you were entitled to claim the VAT on the purchase as input tax

If client gives a UK customer free goods, having reported purchases from Germany under reverse charge, is that an entitlement to claim the input tax for this purpose?

Sense tells me he needs to account for output tax, but just checking before breaking the news.

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By spidersong
19th May 2016 16:37

If he applied the "reverse charge" presumably he entered an amount to Acquisition Tax (Box 2) and also to Input Tax (Box 4)?

The fact that he's claimed Input tax is hopefully indicative that he was entitled to do so.

Incidentally the law (Sch 4 VAT Act '94) doesn't mention Input Tax it just says it's applicable where they were entitled "to credit for the whole or any part of the VAT on the supply, acquisition, or importation of those goods". So if he's claimed the VAT on that acquisition he pays the VAT on that gift!

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By JimH
20th May 2016 06:55

Thanks Spidersong, this is all as explained to very grumpy client. However, checking back into his accounting software I've spotted the recipient customer lives the other side of the world. So we could have a 0% export if delivery was never to UK.

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