VAT on GWP (gift with purchase)

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Our company gives for free to a retailer some goods as the GWP.  I am not sure whether VAT should be applied or not? Can we determine the supply as a non-monetary consideration?

Thank you.

Replies (8)

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Replying to David Ex:
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By Laoura
12th May 2022 11:07

Thank you for the link, I have read it but unfortunately, I cannot determine whether we received a consideration in return for this supply.

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Replying to Laoura:
Caroline
By accountantccole
12th May 2022 11:24

Not clear what the transaction is.
Does your advertising say "Buy 2 apples get a free banana" so they are actually buying a whole package or do you make a call on who to give bananas to as a promo?

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Replying to accountantccole:
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By Laoura
12th May 2022 12:01

As far as I understand with any purchase of our product a customer gets for free a gift, which our company transferred to a retailer for free.

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Replying to Laoura:
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By David Ex
12th May 2022 11:39

Laoura wrote:

Thank you for the link, I have read it but unfortunately, I cannot determine whether we received a consideration in return for this supply.

If you struggle with tax law and guidance, the sensible thing would be to engage an accountant. Cheaper than errors you risk making if you try and go DIY.

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Replying to David Ex:
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By Laoura
12th May 2022 12:07

we have already liaised with a Tax inspector who advised us to refer to the VAT guidance(( That's why I need your help))

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Replying to Laoura:
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By Leywood
12th May 2022 12:24

David did not suggest you take advice from a HMRC bod. Never rely on what they have to say.

He is suggesting that you get some proper advice from a professional.

That professional will ask you the relevant questions, but should also look at your contract/advertising or what is used to promote the sales so they can work out what it is you are actually doing, rather than relying on the rather vague narrative you are providing on here. (BTW this forum is NOT here to provide free advice. In fact advice cannot be given at all, it states so in the forum rules).

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VAT
By Jason Croke
12th May 2022 12:55

Start with this HMRC VAT manual link
https://www.gov.uk/hmrc-internal-manuals/vat-supply-and-consideration/va...

A tax inspector is the last person to talk to about this sort of thing, I presume by tax inspector you mean someone from HMRC in the VAT function, but HMRC don't give advice over the phone or in person. To get a proper analysis from HMRC you would need to write to them setting out your transaction in detail, this is called a non-statutory clearance. HMRC will then give you their view.
https://www.gov.uk/guidance/non-statutory-clearance-service-guidance

The answer to your question is going to be driven by the precise contractual facts, I go and buy a thing in a shop and I get another thing (gift) for free.

VAT case involving Marks & Spencer who tried to argue the bottle of wine that comes with their "dine in for £10" deal was free and the customer was only paying £10 for the food items (all zero rated) and the tribunal case looks at what free really means in the context when it is bundled with other things, pages 3-10 explore gifts in more detail.
https://assets.publishing.service.gov.uk/media/5d14c440e5274a06648dca9c/...

Certainly if you are giving things away, the chances of reclaiming input tax on the things you are giving away is unlikely as you can only reclaim input tax if you make a taxable sale and you are giving things away for free here so no VAT charged on sale, no input tax reclaimed.

You say you "transfer the free gift to the retailer for free", so this suggests you are not talking about the end customer, you are selling stock to the retailer and then also sending some different stock to the retailer to give away for free every time someone buys your product....sort of like "buy 3 packs of frozen pork chops and get this trendy cooler bag for free"....the retailer buys pork chops to sell and has a stock of branded bags to give away with every purchase of those chops.

So this sounds like a B2B transaction, you and the retailer. That's your starting point, then look to see if the gift and main purchase are linked and how are they linked, how do you ensure the retailer only gives the gift away to people buying your product, how do you stop retailer just selling your free gift (which they obtained free from you), is the free gift by redemption, by voucher or do you just trust the retailer.

Lot of questions here, so many questions that it suggests you need proper advice.

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