Reclaiming VAT on trivial benefits

HMRC’s guidance seems clear, but all other guidance seems to contradict it

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HMRC's guidance seems to clearly indicate that the VAT on items bought for personal use cannot be reclaimed (Here).

All of the other guidance I have read on the topic, including Ross Martin, indicates that it can be.

What am I missing? I thought it might be because the trivial benefit is regarded as a business expense as it is a way of rewarding or remunerating an employee, however a reward or remuneration does not count as a trivial benefit.

Kind regards

Chris

Replies (33)

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RLI
By lionofludesch
17th May 2020 14:43

You're right - it's not bought for personal use, It's bought for business use - part of the employee'sremuneration, albeit exempt from tax.

Is it a director ? What have you bought and what did it cost ?

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Replying to lionofludesch:
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By chrisacc1985
17th May 2020 17:59

Thanks Lion. If it’s part of remuneration for services then it is not a trivial benefit - https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21868.

It is a director. Personal spend out of the business accounts that is less than £50 would seem to qualify as a trivial benefit, up to the £300 annual cap. (I have read that Tim Goode at PTP buys 12 £50 John Lewis vouchers each year and gives them out to himself and his wife at random points during the year.) I’m not convinced the VAT can be recovered, however.

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Replying to chrisacc1985:
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By lionofludesch
17th May 2020 18:03

chrisacc1985 wrote:

Thanks Lion. If it’s part of remuneration for services then it is not a trivial benefit - https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21868.

It is a director. Personal spend out of the business accounts that is less than £50 would seem to qualify as a trivial benefit, up to the £300 annual cap. (I have read that Tim Goode at PTP buys 12 £50 John Lewis vouchers each year and gives them out to himself and his wife at random points during the year.) I’m not convinced the VAT can be recovered, however.

Probably not on vouchers - it's likely that no VAT is charged.

Look at the vouchers and read the rules for single and multipurpose vouchers.

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Replying to lionofludesch:
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By chrisacc1985
17th May 2020 22:18

Thanks. I know that this is the same with vouchers.

The question is whether VAT can be reclaimed on small personal items that a OMB director pays for with the banks card. You previously said yes as it is a business expense as it is remuneration, however, if it is remuneration then it cannot babe a trivial benefit.

Thank you for your input, but the initial question remains unanswered.

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By Matrix
17th May 2020 22:54

I don’t reclaim VAT on trivial benefits but sorry don’t have a link.

The link you supplied is goods or services supplied to employees by an employer where that employer makes or supplies these goods or services in their business. I don’t think it is relevant. Do you have the Ross Martin link?

I have always taken the view that, for example, if an employer purchases wine (and is not a wine merchant) and gives it to the employee then, even if it meets the condition of the trivial benefits rules, it is not a business expense for VAT purposes so no VAT reclaim is possible.

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Replying to Matrix:
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By lionofludesch
18th May 2020 07:22

Matrix wrote:

I have always taken the view that, for example, if an employer purchases wine (and is not a wine merchant) and gives it to the employee then, even if it meets the condition of the trivial benefits rules, it is not a business expense for VAT purposes so no VAT reclaim is possible.

Employee costs not a business expense ? No input tax on the annual Christmas bash?

Having put that thought in your head, I'd be toey about claiming on alcohol.

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Replying to lionofludesch:
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By Matrix
18th May 2020 07:46

OK Lion please advise why you think the VAT is claimable. I don’t claim but sorry I am too exhausted working on client work to research for another accountant at the moment.

I put wine and my kids’ Christmas presents through and I don’t claim the VAT. VAT on the staff party is staff entertaining so I don’t really get your point.

I am sure this was all discussed when the rules came out. Maybe the OP can do a search.

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Replying to Matrix:
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By lionofludesch
18th May 2020 08:20

I send an employee a bunch of flowers while she's sick. Why wouldn't the VAT be deductible?

I buy my daughter a doll. I wouldn't claim the VAT.

It's important to use common sense.

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Replying to lionofludesch:
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By Tax Dragon
18th May 2020 09:31

What's the difference? Why one and not the other?

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Replying to Tax Dragon:
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By lionofludesch
18th May 2020 09:44

Employee is an employee.

Daughter is not an employee.

Common sense.

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Replying to lionofludesch:
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By Tax Dragon
18th May 2020 10:38

Common sense or stupid example?

If a company buys an employee's daughter a doll, is the VAT recoverable?

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Replying to Tax Dragon:
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By lionofludesch
18th May 2020 10:55

Tax Dragon wrote:

Common sense or stupid example?

If a company buys an employee's daughter a doll, is the VAT recoverable?

If you're comfortable with it, claim it.

I can't see the VATman bothering to raise an assessment on it.

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Replying to lionofludesch:
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By chrisacc1985
18th May 2020 10:56

lionofludesch wrote:

I can't see the VATman bothering to raise an assessment on it.

That's not the point.

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Replying to lionofludesch:
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By lionofludesch
18th May 2020 11:05

lionofludesch wrote:

If you're comfortable with it, claim it.

This is the point.

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Replying to lionofludesch:
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By Tax Dragon
18th May 2020 14:34

Is it?

Never mind the rules, just apply feelings and your personal common sense? (Isn't "personal common sense" an oxymoron?)

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Replying to lionofludesch:
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By chrisacc1985
18th May 2020 10:45

Lion, you haven't addressed the point that anything that is remuneration cannot be a trivial benefit.

I agree that a bunch of flowers for an ill employee would be a business expense that would not be remuneration, however, I am not sure "wine and my kids’ Christmas presents" could be consider a business expense without being considered remuneration.

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Replying to chrisacc1985:
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By lionofludesch
18th May 2020 10:56

chrisacc1985 wrote:

Lion, you haven't addressed the point that anything that is remuneration cannot be a trivial benefit.

I agree that a bunch of flowers for an ill employee would be a business expense that would not be remuneration, however, I am not sure "wine and my kids’ Christmas presents" could be consider a business expense without being considered remuneration.

I wouldn't claim on alcohol. I said so.

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Replying to chrisacc1985:
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By Tax Dragon
18th May 2020 11:33

chrisacc1985 wrote:

I agree that a bunch of flowers for an ill employee would be a business expense that would not be remuneration.

You've lost me. I thought this was your question? If your question was really about wine and presents, you should have said so.

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Replying to Matrix:
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By chrisacc1985
18th May 2020 10:55

Thank you for the reply Matrix.

I am not sure that the link does only relates to supplies that the employer makes, it also includes: - "purchase services for your business but then put them to private or non-business use" and "business assets, like computers, tools and machinery that your business uses."

The Ross Martin link is: - https://www.rossmartin.co.uk/employers/benefits-shares/1512-trivial-bene...

I have just read on Ross Martin "Tax-trap: If input VAT is reclaimed by a one-man owner-manager or for the cost of an event open only to the directors (so other staff are excluded), HMRC will disallow a VAT recovery on the grounds that the motive behind incurring the cost was a personal one. It is difficult to try and disprove that this is not actually the case." - It appears as though Ross Martin does agree that the VAT on wine and kids Christmas presents would not be claimable.

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By pauljohnston
20th May 2020 09:44

I feel ionofludesch is correct. you can claim the Vat it is a business expense (wont ask what kind of doll allegedly for his daughter though).

Trival benefits cant be cash or a cash voucher. I would imaging Tim Goode is on very good (sorry) ground for his John Lewis Vouchers particularly as he advertises what he does.

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Replying to pauljohnston:
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By Matrix
20th May 2020 09:52

Paul I don't really follow what you mean by a business expense - do you mean for corporation tax or for VAT?

Lion has said he wouldn't claim the VAT on the doll. But surely this is a business expense since a corporation tax deduction is claimed although there is no income tax/NI implication under the benefits code due to the trivial benefits rules.

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Replying to pauljohnston:
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By lionofludesch
20th May 2020 10:01

pauljohnston wrote:

Trival benefits cant be cash or a cash voucher. I would imaging Tim Goode is on very good (sorry) ground for his John Lewis Vouchers particularly as he advertises what he does.

Can you get cash from John Lewis ?

I think you can only get goods. So it's not a cash voucher.

There's unlikely to be any VAT though. It'll be a multi-purpose voucher, most likely.

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By pauljohnston
27th May 2020 12:10

Matrix thank you for your question. My post about VAT referred to any trival benefit as it is a staff expense. Unless the item has a zero or nil vat.

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By Echo761
15th Jun 2020 11:15

There are a number of anomalies between what you can claim as a business expense and recover the VAT and what you can claim against your business profits for other tax purposes. Eg. VAT Notice 700/64 Section 5

https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064#input-...
"5. Input tax on repairs and other motoring expenses
5.1 Recovering VAT charged on repairs and maintenance

If you use a vehicle for business purposes, you can reclaim the VAT you were charged on repairs and maintenance as input tax as long as the business paid for the work. It does not matter if the vehicle is used for private motoring or if you have chosen not to reclaim VAT on road fuel.

If you’re a sole proprietor or partner and use a vehicle solely for your own private motoring you cannot reclaim the VAT on repairs as input tax."

but this causes an issue for other taxes, e.g. BIK for PAYE, etc.

In terms of the questions and long long trail of to and fro below. From a VAT perspective you can claim the VAT on purchases to be used in making a taxable supply (except for certain "blocked" items, e.g. business entertainment). Flowers for an ill employee are seen as a business expense - similar to staff entertainment. But buying dolls, Christmas toys for kids, etc have absolutely no business use. Simples.

Trivial benefits are usually in the form of vouchers and the VAT position on these changed w.e.f. 1 January 2019;

Single-purpose voucher (SPV) - Means a voucher where the place of supply of the goods or services to which the voucher relates, and the VAT due on those goods or services, are known at the time of issue of the voucher - Where the VAT treatment attributable to the underlying supply (place of supply and the VAT due) can be determined with certainty upon issue of an SPV, VAT should be charged on issue and at any subsequent transfer of the voucher. The actual handing over of the goods or the provision of the services is not regarded as a separate transaction

Multi-purpose voucher (MPV) Means a voucher other than an SPV - VAT shall be charged when the goods or services to which the voucher relates are supplied, and any prior transfer should not be subject to VAT. The fact that vouchers may be used in several Member States, each of which has different VAT rates, is accommodated in the deferral of the chargeability to VAT until the time of redemption. Any separate supply of services such as distribution or promotion of the vouchers will be subject to VAT

https://www.gov.uk/guidance/business-promotions-and-vat-notice-7007

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By Brenda Bonathan
15th Jun 2020 11:39

I cannot understand what the arguments are about. Unless the expense is wholly for the business then no vat can be claimed. They are also not allowable for CT purposes

The only way that Directors can pay money out of the business account is for the following, Wages via payroll, Dividends & reimbursement of expenses paid by the Director for the company . Anything else including trivial payments paid for but not related to the company should be written back for tax purposes, I personally would put these payments into the directors loan account

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Replying to Brenda Bonathan:
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By Echo761
15th Jun 2020 12:54

Directors can get trivial benefits... up to £300

"Directors of ‘close’ companies
You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.

A close company is a limited company that’s run by 5 or fewer shareholders."

https://www.gov.uk/expenses-and-benefits-trivial-benefits

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Replying to Brenda Bonathan:
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By lionofludesch
15th Jun 2020 13:35

Brenda Bonathan wrote:

I cannot understand what the arguments are about. Unless the expense is wholly for the business then no vat can be claimed. They are also not allowable for CT purposes

Benefits for employees are allowable under the same rules as usual.

The issue is whether they should be taxable on the employee.

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By milleniumaire
10th Oct 2023 09:53

I appreciate this is an old post, but my question directly relates to reclaiming VAT on trivial benefits and this seems to be the most relevant post I can find.
TBH, there seems to have been some "argument" within the post and I can't see a definitive answer, so here is a very specific example of a trivial benefit. Can VAT be reclaimed?

Option 1: My limited company gives an employee a £50 Amazon UK voucher. No VAT is charged, so VAT cannot be reclaimed.

Option 2: My limited company purchases a product from Amazon UK worth £50 including VAT. The VAT is £8.33 so my company can claim that back.

So, in this case, it would be more beneficial for the company to purchase the product for my employee rather than provide gift vouchers.

Is this correct?

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Replying to milleniumaire:
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By kim.shaw-and-co.com
24th Dec 2023 13:50

Businesses can reclaim VAT on the cost of a gift given to an employee provided it is not contractual and not a reward for services under general principles. There is likely to be a presumption of an underlying business purpose in the same way there is for staff entertaining, unless facts and circumstances suggest otherwise.

Therefore, you are correct in these very specific circumstances - the P&L cost to your limited company of gifting the product purchased from Amazon (on which the company can recover all VAT as input tax if it only makes taxable supplies and is not subject to partial exemption) rather than a voucher to the same value (on which there is no VAT at the time the voucher is procured) is lower compared to the value of the same item in the hands of the employee.

The VAT analysis is simple - the supply is made to your business when the item intended as an employee gift is procured. It is not at that time (pre-gift) supplied to the employee, so it is an input of your business and VAT analyzed accordingly. There is no VAT output tax (private benefit) charge on the gift in your example at the time it is made, provided there is a strict business purpose to the employer's gift being made to the company employee who receives it.

If you give employees a voucher, any supply made by Amazon will be to your employee (after they have received the voucher as a gift) and not to the limited company for business purposes at the time of (Amazon's) supply. As such, there is no prospect of input tax recovery for the limited company who gifted the voucher subsequently used by the employee to purchase the same item.

Provided the total cost of providing the gift (including amount of VAT, whether or not reclaimable, and any delivery charge or other associated cost such as gift-wrapping etc) falls within the trivial benefit cost limit and meets any other relevant qualifying criteria, then it is also deductible for CT and will not give rise to a benefit in kind for the employee either.

Hope that clears things up a bit ?

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Replying to kim.shaw-and-co.com:
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By FactChecker
24th Dec 2023 14:42

This whole thread should be held up as an exemplar to those who expect that 'a simple question deserves a simple answer'!

It's difficult, if you know anything about the topic being raised, not to raise further questions within any partial response (which can lead to OP's question becoming lost in the criss-cross dialogues) ... or if trying for the comprehensive answer (as you have made a good fist of doing here) not to require copious caveats in which to wrap each phrase (as you have also done).
Yet, despite you utilising Christmas present-levels of wrapping, there are still plenty more that could be added (such as 'but only if employer is not operating under a VAT flat-rate scheme').

Of course most readers here will know this and make the correct assumptions, but not every reader has relevant knowledge - and few are versed in the more arcane ginnels that may meander around the back of a specific set of circumstances - which is why the site states that posters should not seek advice (in the guise of 'answers' upon which they unquestioningly later rely).

In short, whilst I hope that your helpful summary "clears things up a bit" for the person to whom you've responded ... it is still not (and could never be within this medium) a gold-plated answer for one-and-all, as some readers seem to assume.

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Replying to FactChecker:
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By kim.shaw-and-co.com
24th Dec 2023 17:27

Indeed, you make some very good points there and extrapolation is always a dangerous thing. You can only ever get a full answer if all relevant facts and circumstances are laid out from the outset. Anyone who has tried to get a Counsel's Opinion at any stage, for example, will be only too aware of this !

There is also the unlikely (in practice for such sums, but nevertheless not theoretically infeasible) possibility of HMRC arguing that goods acquired for onward gifting are initially akin to 'stock' and therefore a taxable self-supply of the company's stock for no consideration arises at the time of the gift.

They would likely point, if that argument were run, to the final sub-heading "if you don't receive any consideration" in their Guidance here : https://www.gov.uk/guidance/vat-private-use-and-self-supply-of-goods-and...

The point is really in this particular example that they are very unlikely to run that argument to seek an output tax charge on a self-supply where an (exempt) one-off trivial benefit to a 'regular employee' is in point. For the same reasons they do not, in practice, pursue an output tax charge in connection with the costs of an annual Christmas party attended only by employees which falls within the exemption limits.

If the legislation and/or case law are 'muddy' then there may not be absolute certainty one way or another what is "correct". In these situations, the total amount of tax likely involved is usually reflected in HMRC's approach to some extent. Make a habit of something and ramp up the cumulative 'tax at stake' and you may very well find considerably more interest being shown and a less pragmatic approach being taken. In this case, likely aimed at whether there is disguised remuneration in point arising from constructive obligations of an employment contract !

Happy Christmas to all !

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Replying to kim.shaw-and-co.com:
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By Tax Dragon
24th Dec 2023 19:54

I'm going to stop commenting on issues I don't enough about. That's similar to resolutions I've made before, but I'm much busier now and it will be easier to stick to. Justin might say that in consequence I might never contribute again. Fair enough. It definitely includes VAT.... so here's my last contribution on that topic.

I agree with you that it's probably the output tax position that'd be of more interest to HMRC.

A question back to you if I may. £50 trivial benefits limit. VAT-inclusive figure or not?

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Replying to Tax Dragon:
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By kim.shaw-and-co.com
24th Dec 2023 20:46

I so rarely have time to read threads these days I'm pretty ignorant of your history @Tax Dragon - but I have definitely seen you signpost the appropriate questions to be considering when nobody else was on more than one occasion .. so hopefully there will be more of that to come !

As with all BIKs, the trivial benefits exemption limit is inclusive of VAT whether VAT is reclaimed by an employer or not. For the same reason the Christmas party exemption limit is a VAT-inclusive one, even if the employer claims input tax. HMRC's viewpoint on that particular question is unambiguous :

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim15525

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21865

Whilst HMRC may not pursue an output tax charge in very specific circumstances, for the purposes of the benefits legislation (including ascertaining whether a gift was within any exemption limit) an employer would have to 'price' the benefit-in-kind received by the employee "as if" VAT had not been claimed as input tax by the employer.

Employees of VAT-registered businesses therefore receive BIKs which are costed identically to those received by employees of businesses that are not VAT-registered or who only make exempt supplies. This, at least, is an "even-handed" outcome for all.

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