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Vat on Client Gifts of Alcolhol

Vat on Client Gifts of Alcolhol

What is the rule for reclaiming input vat on giving handover gifts of bottles of champagne when selling cars to the public.  They are less than £50, but don't include any advertising or corporate logos etc.

As usual the Inland Revenue website is pretty useless, and I am getting conflicting messages from various other websites.

I believe that vat on alcohol for business entertaining cannot be reclaimed, but are gifts different?

Some are saying that alcohol is specifically excluded and you can't reclaim Vat, and some say that there is no exclusion.

Please what is rule and can you point to the specific bit of legislation.


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30th Apr 2010 09:37

Not sure but

A gift of alcohol is not an allowable expense for tax purposes so i don't see how you could reclaim the VAT on it.

That being said, VAT is a weird sort of tax, so cant be certain.

Try calling the VAT helpline, they should give you the answer after you eventually get through !!!!!

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By Anonymous
30th Apr 2010 12:00

You can recover the input VAT,

but you generally also have to account for output VAT (based on cost) on the supply of goods that you are making in the course of furtherance of your business, when you make such a gift.

Paragraph 1 of Schedule 4 of the VAT Act 1994 says, "the transfer of the whole property in goods is a supply of goods".  Paragraph 5(1) then says, "where goods forming part of the business assets are transferred... whether or not for consideration, that is a supply... of goods".

However, paragraph 5(2) excludes "business gifts" from this treatment.  A "business gift" being one made in the course of furtherance of the business and where the cost per donee (in total in any 12 month period) is less than £50.  So you probably don't need to account for output VAT on said champers.

There's no food or drink exception to this, unless it also happens to be business entertaining (ie champagne by the glass in the showroom).

Just to elaborate on the above point re disallowance of gift expenditure for direct tax purposes, this isn't limited to alcohol.  It's food, drink, tobacco and vouchers/tokens.  Gifts to employees are fine though even if it is food or alcohol (or even tobacco) and HMRC may even agree that it's a non-reportable trivial benefit.

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