VAT on invoice to employees

Employee leaving company has asked to be invoiced, should the invoice include VAT?

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The employee is leaving and needs to pay back their professional course fees, they've asked for an invoice - should the invoice include VAT?

The course invoice included VAT.

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By SXGuy
23rd May 2024 11:12

Can you explain your logic behind a non vat reg person charging vat to someone else?

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Replying to SXGuy:
RLI
By lionofludesch
23rd May 2024 12:00

SXGuy wrote:

Can you explain your logic behind a non vat reg person charging vat to someone else?

Let go of that stick and pick up the other end.

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By Paul Crowley
23rd May 2024 11:28

Was that a bit silly of him?
Cannot think of any reason to zero rate the invoice.

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DougScott
By Dougscott
23rd May 2024 11:41

Yes, whether or not you are VAT registered. If you are VAT registered then you will need to account for the VAT to HMRC.

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By Carlyannec
23rd May 2024 11:50

Clearly I didn’t word the question correctly and as a result I’ve caused some confusion.

We are a VAT registered company, we were invoiced by a course provider for a course that our employee attended. The employee is now leaving the business and has to repay the course fees, we will issue an invoice to the employee, should our invoice include VAT?

VAT on the original invoice for the course has been reclaimed.

The employees employment contract mentions that they will repay course fees if they leave the business within a certain time frame, it doesn’t mention whether the repayment amount will be Gross or Net.

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Replying to Carlyannec:
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By Justin Bryant
23rd May 2024 13:12

Can't you argue that this is analogous to an employer overpaying and recovering a salary etc. from an employee and so is outside the scope of VAT? If so and the employer has recovered the input VAT, then arguably (and subject to by the ee/er contract) only the net cost needs to be repaid (assuming no VAT adjustment* is required re the original supplier invoice to the company).

*It's not covered by the usual adjustment rules: https://www.taxinsider.co.uk/when-to-claim-back-input-tax-ta

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Replying to Justin Bryant:
DougScott
By Dougscott
23rd May 2024 13:45

I guess it would depend on what the agreement with the employer said on whether you could legitimately do this. If it just said that if you leave within a certain number of years "you will have to reimburse the course fees" then VAT should be charged. If however it said something along the lines of the final salary payment being reduced to compensate the employer for their costs then I would have thought you could get away with just deducting the net amount.

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Replying to Dougscott:
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By Justin Bryant
23rd May 2024 14:08

Well, there aren't many VAT schemes these days, so that sounds like a good one to me (DN would not approve)!

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Replying to Justin Bryant:
Stepurhan
By stepurhan
23rd May 2024 15:46

Justin Bryant wrote:
(DN would not approve)!
That took less time than I expected.
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Replying to Carlyannec:
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By Paul Crowley
23rd May 2024 13:14

If you reclaimed the VAT on paying the course then the invoice you send out should charge VAT.

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Replying to Carlyannec:
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By SXGuy
23rd May 2024 13:16

Now it makes sense. Yes charge vat

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By FactChecker
23rd May 2024 16:25

Just to be clear (or not as the case may be) ...

Assuming the company was originally charged, say, £1,000 + VAT,
is OP asking:
- whether to invoice the ex-employee for £1,000 + VAT ?
or
- whether to invoice the ex-employee for £1,200 + VAT?

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Replying to FactChecker:
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By 17RDR12
23rd May 2024 16:35

£1200 + VAT would be taking the p somewhat

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Replying to 17RDR12:
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By FactChecker
23rd May 2024 19:15

Thought we were discussing what would be correct (WISWTW) - rather than the perception it might leave for moral adjudicators?

Every company's processes I've seen, where they have staff who undertake business travel in a company car to visit clients for chargeable work, has distinct processes:
a) reimbursement to employee of fuel costs (including the VAT) as expenses for the business mileage;
b) recharging those expense costs (on top of the separate day-rate or whatever) to the client, where those costs are themselves then subject to VAT.

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Replying to FactChecker:
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By lionofludesch
23rd May 2024 19:39

FactChecker wrote:

Thought we were discussing what would be correct (WISWTW) - rather than the perception it might leave for moral adjudicators?

Every company's processes I've seen, where they have staff who undertake business travel in a company car to visit clients for chargeable work, has distinct processes:
a) reimbursement to employee of fuel costs (including the VAT) as expenses for the business mileage;
b) recharging those expense costs (on top of the separate day-rate or whatever) to the client, where those costs are themselves then subject to VAT.

I'm with 17RDR12.

Cost to be recovered by the company (in your example) is £1000 + VAT. But not £1000 + VAT, +VAT.

Nothing to do with moral perceptions.

But I'd like to see what the actual wording is.

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Replying to FactChecker:
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By Paul Crowley
23rd May 2024 16:45

That had crossed my mind as being in the mix.

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Replying to FactChecker:
DougScott
By Dougscott
23rd May 2024 18:03

No, recharge the same at £1000 + VAT.

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Replying to Dougscott:
DougScott
By Dougscott
23rd May 2024 18:05

Or you could risk it and charge the employee £1000 and hope no one notices. It's not like HMRC have the resources to carry out VAT Inspections these days. Your call.

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By Ruddles
23rd May 2024 19:23

What is the supply?

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Replying to Ruddles:
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By lionofludesch
23rd May 2024 19:53

Ruddles wrote:

What is the supply?

One presumes training. But it could be an overpayment of salary.

What does the contract say?

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By bettybobbymeggie
23rd May 2024 20:14

Carlyannec wrote:
should the invoice include VAT?

I vote no.

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Replying to bettybobbymeggie:
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By lionofludesch
23rd May 2024 20:47

bettybobbymeggie wrote:

Carlyannec wrote: should the invoice include VAT?

I vote no.

Ooh!

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By More unearned luck
23rd May 2024 20:52

Who is supplying what, if anything, to whom?

If the employee hadn't handed in his notice would anybody argue that the employer had supplied a service to the employee? So, why are people, other than Ruddles, suggesting that there has been a supply now?

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Replying to More unearned luck:
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By FactChecker
24th May 2024 00:23

As mentioned ... highly dependent on wording in the Training Agreement (or in the relevant terms of the Employment Contract).
But I've certainly seen one, for instance, which framed the original payment (by ER to training company) as a Loan to EE ... which would be paid off (specified amounts at specified dates) via continuing employment, such that any outstanding balance becomes repayable by EE if they leave 'too soon'.

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Replying to FactChecker:
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By More unearned luck
24th May 2024 15:31

That might be OK for a VAT exempt business, but surely a taxable business would not want to loose the opportunity to reclaim the VAT the trainer charged?

But on your facts: are loan repayments supplies? In the case of a loan the supply is the use of money. The borrower, when making repayments isn't supplying anything. In the case of car hire the business is supplying the use of the car (and not the car) and the customer on returning the car is not supplying the car.

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Replying to More unearned luck:
RLI
By lionofludesch
24th May 2024 15:49

More unearned luck wrote:

That might be OK for a VAT exempt business, but surely a taxable business would not want to loose the opportunity to reclaim the VAT the trainer charged?

But on your facts: are loan repayments supplies? In the case of a loan the supply is the use of money. The borrower, when making repayments isn't supplying anything. In the case of car hire the business is supplying the use of the car (and not the car) and the customer on returning the car is not supplying the car.

If it's a loan, to whom was the original supply of training made? Presumably not the employer. In which case, no VAT recovery.

Just saying .....

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Replying to More unearned luck:
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By FactChecker
24th May 2024 20:46

TBH I don't know all the implications of the wide variety of these types of training agreements - but my main point wasn't a conclusion, more just pointing out how diverse are the agreements I've seen (even though it's not even 'my area').

On the specifics ... my memory is hazy (sounding like Vennells now), but I think I recall one of the companies saying that the 'loan' was only a general description of the arrangement (as in the 'reducing balance' concept).
ER remained the purchaser of the training / which was supplied to EE under a form of barter or remuneration for continuing employment / so repayment by EE was a refund of said remuneration under the 'loan' arrangement.
Very muddled thinking (whether originally or my failing memory I'm less certain) - but I suspect that the refund was usually done via payroll and this thread has taken a different track by going down the invoicing route?

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Replying to FactChecker:
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By kim.shaw-and-co.com
30th May 2024 01:56

FactChecker wrote:

As mentioned ... highly dependent on wording in the Training Agreement (or in the relevant terms of the Employment Contract).
But I've certainly seen one, for instance, which framed the original payment (by ER to training company) as a Loan to EE ... which would be paid off (specified amounts at specified dates) via continuing employment, such that any outstanding balance becomes repayable by EE if they leave 'too soon'.

A limitation with this is that it's a one-way street to the repayment(s) becoming taxable as further earnings as the loan is repaid. Once they are characterized as loans, they cannot "conveniently" be re-characterized as deductible training costs (provided they otherwise are).

If the employer is seeking to recover VAT and access tax relief on the provision of job-related training rather than the payment of taxable remuneration (which is usually considerably costlier if there is to be no cost borne by the employee), there are likely more elegant ways of dealing with things.

However, if there is a high instance of 'employee flight' before value has been received by the employer from the employee then deferral of employment-related tax costs to loans becoming repayable out of net salary or termination entitlements (suitably contracted) is likely understandable. The ability to "pin tax risk" on former employees associated with employment-related loan write-offs after they leave can also be helpful depending on prospects of recovery.

There's a useful reference to Clayton v Gothorp (47TC168) on waivers in EIM01490

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim01490

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Replying to kim.shaw-and-co.com:
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By FactChecker
30th May 2024 15:16

Thanks .. and your first sentence is indeed one aspect of which I was thinking when I said there were a wide range of different 'schemes' out there in active operation.

TBH the fuzziness of my memory was partly deliberate in case I accidently revealed anything about that particular client (who is now a 'Top 25 Accountancy firm' and were at the time looking for a technological solution for tracking the progress of graduate entrants - from reminders of forthcoming exams to handling periods of study leave and, with luck, the substantial 'stage' pay increases).

As you can imagine this (the recruitment and training element - not unfortunately my fees) was a major ongoing investment for them ... so I guess the 'stick' element was more important than any 'tax efficiency'.

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Replying to FactChecker:
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By kim.shaw-and-co.com
30th May 2024 15:40

FactChecker wrote:

As you can imagine this (the recruitment and training element - not unfortunately my fees) was a major ongoing investment for them ... so I guess the 'stick' element was more important than any 'tax efficiency'.

A downside for the employees, no doubt part-mitigated by their receipt of higher base pay than smaller training firms might have offered them. As trainees, one wonders at what stage in their training they realized they would wind up having a chunk of it taken back off them as their "loans" were waived.

If nothing else, it hopefully taught them something about marketing and hidden costs !!!

As far as I am aware, the lure of a deduction for work-related training was too attractive to my own employer at the time to turn down. I did of course 'stay the course' (and then some) so they got full value for their investment - and a tax-efficient outcome was likely achieved all round.

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Replying to Justin Bryant:
By Ruddles
24th May 2024 10:10

It isn't

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Replying to Ruddles:
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By lionofludesch
24th May 2024 17:05

Ruddles wrote:

It isn't

[chuckle]

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By Justin Bryant
24th May 2024 17:03

So, if a VAT registered company offers to buy its staff a new oven for their kitchen or whatever (as a reward for their services) and claims input VAT (invoices addressed to company) and then some of the staff make good (on the VAT inclusive amount) so there's no BIK, why does that not avoid VAT (at the expense of marginal IT/NIC on the relevant amount if it's made good by deduction from salary, less the marginal IT/NIC saving from avoiding having to buy the oven from after tax earnings at the VAT inclusive price)?

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21120

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Replying to Justin Bryant:
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By kim.shaw-and-co.com
26th May 2024 02:35

Justin Bryant wrote:

So, if a VAT registered company offers to buy its staff a new oven for their kitchen or whatever (as a reward for their services) and claims input VAT (invoices addressed to company) and then some of the staff make good (on the VAT inclusive amount) so there's no BIK, why does that not avoid VAT (at the expense of marginal IT/NIC on the relevant amount if it's made good by deduction from salary, less the marginal IT/NIC saving from avoiding having to buy the oven from after tax earnings at the VAT inclusive price)?

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21120

Who the invoice is made out to is not the relevant issue - it is to whom the supply has been made ... if that is to the employee by the retailer paid for by the employer then no input tax could be claimed.

However, assuming the supplier initially makes a supply to the employer then the employer will own the oven unless a gift is made to the employee(s) or an onward supply is made instead whereby the employee substantially purchases the oven from their employer by 'making good'.

Employees "making good the VAT-inclusive cost" are in receipt of an onward supply in this example - there is no 'gift' of the oven in circumstances where monetary consideration is received by the employer - and obviously no reward for services if the employer has been fully 'paid back'.

As such, output tax would fall to be accounted for by the employer and the input tax claimed by the employer on their initial purchase of the oven would be directly attributable to the taxable onward supply made to their employee.

In the case of a gift of the oven, HMRC consider that the normal business gifts rules apply because employee's services are not seen as having been received by way of consideration for the goods. They confirm this here :

https://www.gov.uk/hmrc-internal-manuals/vat-supply-and-consideration/va...

Since the oven is likely to have cost over £50, the chances of the small gifts exemption being relevant is slim and therefore, the employer would be liable to account for output tax on (effectively) the replacement value of the oven at the time it was gifted to the employee.

https://www.gov.uk/hmrc-internal-manuals/vat-valuation/vatval08700

If the employee received the oven around the same time the employer procured it then the relevant value of the supply on which the employer would be liable to account for output tax is likely to be the same as the cost paid by the employer to the supplier from which it was procured.

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Replying to kim.shaw-and-co.com:
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By Justin Bryant
29th May 2024 10:01

But have you wrongly assumed it's a gift to the relevant employee, when my above assumption was that it's a vanilla BIK i.e. a contractual non-cash reward/benefit provided by the employer to the employee for the latter's work/services, just like a car etc. is (that may or may not subsequently be made good).

The above HMRC guidance does not say all such BIKs made good are gifts in the first place for all purposes in case that's what you're saying. It would be a strange type of gift that's only a gift in the first place for the donor if it's subsequently repaid by another gift by the donee.

Surely the employer can recover the input VAT on the oven as it's incurred in the first place for the purpose of their VAT outputs (which it is)? Just because the employee effectively makes their own subsequent gift back (by making good) should not change that (by having to adjust a subsequent VAT return otherwise). Or what is the legislation that blocks that?

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Replying to Justin Bryant:
By Ruddles
29th May 2024 17:53

I wonder how many employment contracts you have seen, Justin, where the employee has agreed to be (part) remunerated in the form of kitchen appliances?

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Replying to Justin Bryant:
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By kim.shaw-and-co.com
29th May 2024 23:22

Justin Bryant wrote:

Surely the employer can recover the input VAT on the oven as it's incurred in the first place for the purpose of their VAT outputs (which it is)? Just because the employee effectively makes their own subsequent gift back (by making good) should not change that (by having to adjust a subsequent VAT return otherwise). Or what is the legislation that blocks that?

A 'vanilla BIK' as most would arguably understand the term isn't contractual non-cash remuneration involving assets procured for an individual's home being passed from employer to employee instead of cash - it would usually be a BIK not amounting to a contractual entitlement.

Additionally, it's not a car is it, Justin, that is a class of benefit covered by its own specific rules in terms of valuation of the relevant benefit based on (VAT-inclusive) list price of a vehicle and its emissions. You cannot "make good" a car benefit and the only reason HMRC does not restrict input tax claims for fuel is because a fuel scale charge is paid instead. That practice alone ought to give you an indication as to whether or not they consider an output tax charge can/should be associated with a contractual non-cash reward as a matter of general principle.

Any requirement for the employee to 'make good' would in practice form part of the contractual arrangement from the outset - so how would you propose to exclude VAT from the sum required to be made good without leaving a residual BIK to the value of the VAT share of the value of the oven received ?

As mooted above, whose employment contract specifies that part of their remuneration will be paid in the form of kitchen appliances rather than in the form of cash ?

Assuming it is not regarded as a readily convertible asset on which PAYE and NIC are due, and there's no strange salsac arrangement in respect of a benefit that is not exempt to muddy the waters, the non-cash remuneration received by the employee might conceivably end up included on Form P11D rather than being processed through payroll despite being contractual.

So, it then boils down to how the contractual non-cash remuneration is valued - i.e. the VAT-inclusive amount or the net cost of the oven ... in essence the value to the recipient or the cost to the payer.

Say I am not VAT registered (or if I am, I do not receive consideration for a supply that is in the course of my business because I am an employee). You owe me £10 worth of contractual non-cash remuneration and we agree you provide me with ...x... which it would cost me £10 to buy so I am willing to accept it as full consideration for £10 worth of my services.

It may have only so far cost you £8.33 but you will be discharging an obligation valued at £10 of non-cash remuneration due.

There is what amounts to a barter transaction now in point. The employee's supply to you (being one of services under a contract of employment) is clearly outside the scope of VAT. However, it does not necessarily follow analytically that when tendering goods instead of cash consideration in payment for services received there has been no supply made by the employer to the relevant employee upon the making of that "payment".

If this were B2B rather than employer-employee the barter principles are clearly explained in Guidance :

https://www.gov.uk/guidance/vat-part-exchanges-barters-and-set-offs

The only difference here versus the example in the guidance is that one side of the barter does not amount to a taxable supply (the supply from the employee to the employer). Input tax is only recoverable if an output tax charge arises on the onward supply to the employee (the services of whom it would no doubt have been procured to pay for given, as you say, there is a contractual obligation to make payment in this 'non-cash' form ... why else would they have bought it ? ).

A "gift" from the employee back to the employer is not a payment for the purpose of "making good" the cost of the non-cash consideration received - if it is to be regarded as a gift it cannot also be 'making good' the cost of the oven in whole or in part.

The value of the non-cash remuneration represented by the taxable amount of the BIK declared would be VAT-inclusive, so in order to reduce the employee's liability to 'nil' by making good they would have to repay the employer an amount equivalent to the VAT. How does that help the employee ?

A more helpful (except to the parties perhaps) construction of the effect of voluntarily "making good" non-cash remuneration to which the employee is contractually entitled might be to draw an analogy with repayment of a bonus.

If the contractual right is to the entire non-cash remuneration from the outset, the tax charge arising on the full amount could not be reduced by paying it back apart from treating it as negative earnings :

https://www.gov.uk/guidance/checking-how-to-claim-a-tax-refund-for-negat...

Mechanically, VAT is charged on supplies so where it comes into point on account of the initial consideration passed from employer to employee it may not be correct to claw it back if the employee then decided to give some cash back to the employer - that is potentially a separate event outside the scope of VAT. Even if it did, the effect would only be pro-rata out of the sum paid back.

It is also only possible to mitigate Class 1A in circumstances where there is making good the value of a benefit - a clear and distinct connection between one and the other. It would be interesting to consider whether the concept of "making good" properly applies in circumstances where the amount included in a P11D was contractual non-cash remuneration instead, or whether the "making good" in such circumstances is substantially a separate gift from employee to employer not properly attributable to the benefit initially received at all.

Relevant facts and circumstances might play a key part in the outcome, but in that case, it is feasible no tax relief would arise to the employee making the 'gift back' at all - 'negative non-cash remuneration' may not be in point where there is no obligation for the employee to repay if circumstances X or Y arose. In addition, no reduction in the value of the BIK would be relevant for NIC purposes.

As regards VAT, the route from A to B is less clear where contractual non-cash remuneration is in point but I don;t think the end result is likely to be any different.

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Replying to kim.shaw-and-co.com:
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By Justin Bryant
30th May 2024 09:08

Leaving aside whether you can or cannot make good certain BIKs (I believe you can for most BIKs), your above answer is not convincing and employees can make good as they wish subsequently. Even if they don't make good there seems to be an overall tax saving re the input VAT recovered by the company compared to the employee buying the oven with after tax earnings with irrecoverable input VAT.

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Replying to Justin Bryant:
By Ruddles
30th May 2024 10:01

The previous response is more convincing and better reasoned than anything you have said so far. You should perhaps consider HMRC’s thoughts on the topic of an employer providing employees with goods, contractually or otherwise.

VATSC03330 might be a useful starting point. Ie read it - and related guidance - properly.

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Replying to Ruddles:
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By kim.shaw-and-co.com
30th May 2024 13:32

Ruddles wrote:

The previous response is more convincing and better reasoned than anything you have said so far. You should perhaps consider HMRC’s thoughts on the topic of an employer providing employees with goods, contractually or otherwise.

VATSC03330 might be a useful starting point. Ie read it - and related guidance - properly.

Thank you @Ruddles ... I was rather hoping @Justin would pick up on the barter transaction presumption and home in on the potential interplay between 'making good' and the definition of a gift / normal business gift rules to develop his argument, addressing the application of a 'barter transaction' framework to his examples from that standpoint ....

Rather than give him "judgements to pick apart" he has enough leads to put together a full analytical reasoning for a viewpoint on the VAT position, starting with consideration of the normal business gift rules if no consideration is received from the employee for the goods.

He might then go on to consider whether the normal business gift rules could be in point in circumstances where (any amount of) cash consideration were received from an employee towards the goods they receive, and think about the circumstances in which it would be reasonable to attribute the employer's receipt from the employee to receipt of those goods. He might perhaps read back over his previous posts when doing that, particularly his suggestions regarding contractual arrangements and potential gifts from employees to employers.

Finally, he might round off by considering whether, should cash consideration be received by the employer from the employee towards the employee's "purchase" of the goods at undervalue (compared to their full VAT-inclusive value), the receipt of that contribution constitutes cash consideration received for a supply. If so, what the implications are for the employer in terms of output tax comprised within that consideration that the employer may be liable to account for to HMRC.

This will leave him with the answer about the value of any residual BIK not made good on which the employee is liable to tax either under the benefits code or as s62 earnings (depending on how the entitlement to the relevant earnings fits in with the contractual position).

@Justin - would you be happy to work up a brief analysis of the above ?

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Replying to kim.shaw-and-co.com:
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By Justin Bryant
31st May 2024 11:20

Being a bit blunt, your answers are a bit too verbose to read in full and don't cite supporting case law/legislation and that's why they're unconvincing (HMRC manuals are not the law). This judge agrees with my view re gifts at para 55:

"The word 'gift' simply means a benefit conferred on one person by another, without any linked payment or compensation for that benefit."

https://www.bailii.org/ew/cases/EWHC/Ch/2024/1290.html

As for the other people/animals commenting here, the less said the better.

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Replying to Justin Bryant:
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By kim.shaw-and-co.com
31st May 2024 12:35

Justin Bryant wrote:

Being a bit blunt, your answers are a bit too verbose to read in full and don't cite supporting case law/legislation and that's why they're unconvincing (HMRC manuals are not the law). This judge agrees with my view re gifts at para 55:

"The word 'gift' simply means a benefit conferred on one person by another, without any linked payment or compensation for that benefit."

https://www.bailii.org/ew/cases/EWHC/Ch/2024/1290.html

As for the other people/animals commenting here, the less said the better.

Justin, are you seriously referring to my responses as verbose set against the typical cases you link in this forum where a simple concept runs to pages of deliberations you need a case summary to distil ? You are the one challenging viewpoints so it's actually for you to cite case law if you you think that HMRC's (or another's) viewpoint on the implementation of taxation principles is NOT correct.

You have gone off at a tangent in relation to the gift issue .... and totally missed the point in relation to the technical analysis you have been led to as regards the VAT issues in point. If you don't understand the linked Guidance signposting how to evaluate the outcome of the analysis (or can't be bothered to read it) then it indicates you don't actually understand how HMRC view the transaction and are asking for this to be "spelt out".

That is the problem with trying to throw case law into the mix in the absence of a full technical analysis of relevant transactions in support of your contentions (if you are clear what they are at all). Having attended CPD courses where the relevant outcomes you are opaquely alluding to are highlighted my guess is that you haven't actually worked out HOW those outcomes might arise or for whose benefit, just assumed there's a "benefit" for both employee and employer without actually thinking it through.

You seem to imply that the employer being able to recover VAT as input tax helps the employee because the employee is better off receiving the appliance from their VAT-registered employer than if they were to buy the appliance themselves.

This assumes they are able to capture a tax benefit for themselves in the sum of output tax that would not come into point. I would respectfully suggest that you are misguided in that assumption and would arrive at the same conclusion by analysing the transactions properly in terms of both employment taxes and VAT.

Rather than looking for case law to link in support of a general idea or concept to try to prove an aspect which is not actually in dispute at all it might help your case more to do as I suggest above .... and demonstrate you understand the reason why any tax advantage might arise, its extent, who in the bargain actually stands to benefit (and who - as you do not seem to appreciate or imply is not the case - may not benefit at all 'ceteris paribus').

Starting from a comparative position of the employee receiving cash remuneration rather than goods might help. I tried you point you in that direction without spelling it out above but you seem to have missed the point, taking a defensive-aggressive approach instead.

I think you may be confusing yourself (and others) by conflating use of a P11D for the purposes of reporting non-cash remuneration intended to be passed as a reward for services with use of a P11D to report the value of employment-related gifts made to staff for no consideration at all.

The reporting instrument can be relevant to use in both situations. NIC is a different consideration again - one you haven't elaborated on given you have previously stated it is to be assumed that non-cash remuneration arises pursuant to a contractual entitlement rather than a gratuitous award. It might be helpful if you could state your views on that in this context too.

Having introduced a strange concept of paying staff in kitchen appliances as a matter of contractual entitlement (rather than making a gratuitous award to them in lieu of, say, a good meal out) you have then deflected from the relevant issue (in terms of VAT) by making reference to the employee making a gift back to their employer rather than passing (some) consideration for a supply of goods (making it a taxable supply for monetary consideration on which consideration the employer will be liable to account of VAT).

In doing this you have completely missed the underlying point in relation to the employee's position with respect to the value of the taxable reward towards which they have now made a partial contribution. The award must have been made in order that the employee can "make good" towards it. You cannot "make good" the cost of nothing.

So, as I have already said, what is the 'employment reward' value of the appliance before any "making good" is taken into account ? Net of VAT cost to the employer or VAT-inclusive value in the hands of the employee ? I think you are likely, if you think about it (as are most) to fall on the side of the latter. If not, perhaps you could give us some case law supporting why that would not be found to be the case at Tribunal ?

You have also "missed" the point you could be validly making and demonstrating with regard to the cost to the employer of providing the employee with the same amount of taxable employment income through manipulation of the value of their taxable supply (for VAT purposes) to bank themselves an advantage in terms of receipt of services from the employee at a lower P&L cost to themselves.

Think about that Christmas party which fails to meet the £150/head (VAT-inclusive) exemption and ends up on a P11D. The employer still claims back VAT as input tax. But how much are employees taxed on causing an asymmetry between the employees' income for P11D purposes and the P&L cost to the employer ? .......

How about re-reading my responses above, looking at the content of the Guidance linked and drawing out the relevant points you do have to make ?

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Replying to kim.shaw-and-co.com:
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By Justin Bryant
31st May 2024 13:57

That's all far too verbose, again!

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Replying to Justin Bryant:
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By kim.shaw-and-co.com
31st May 2024 14:26

Justin Bryant wrote:

That's all far too verbose, again!

No substantial response ... again. Yet you can spend hours pouring over endless pages of legal deliberations. I'm beginning to think you just don't understand how to construct your own arguments and can only rely on others to do so before commenting on them.

How about making it even easier for you (seeing as you seem to need a single point to search for case law on) ...

Try reading here : https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21640

What is the "actual or deemed cost to the employer" from which any contribution received from the employee is deducted ? The cash cost or the net P&L cost ? I know which interpretation my money would be on in relation to the likely outcome at Tribunal....

So back to the crux of it - how does the employee benefit from a tax saving versus buying an asset from a store in any way when they are taxable on a VAT-inclusive value of assets received by way of non-cash remuneration (even less so if they have to make a contribution) apart from potentially through marginal NIC effects (which you have not even mentioned) ?

If the employee doesn't stand to benefit (only the employer) how is the proposal an attractive reward for them and why would they not just prefer to take cash instead ?

Oi, Jim, you can have this oven worth £1,200 you'll have to pay me £1 for to make my VAT wheeze work, but you'll have to pay tax on £1,199 ... and if you want cash it'll be a reduced bonus because I'm trying to get HMRC to cover some of your pay for me by giving me a VAT refund on the oven. Does that sum it up ?

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Replying to kim.shaw-and-co.com:
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By Justin Bryant
31st May 2024 14:33

Eh? I cited one para in a court case that shows HMRC are talking nonsense there re their interpretation of a gift. Even ignoring that, employers do not generally make gifts (properly so called) to their employees. These so-called gifts are instead rewards/incentives for the employee's services (HMRC at least accept that point re CGT for EBTs). In other words, assuming the employee is not a relative/friend of the employer, if the employee didn't work in the company no so-called gift would be made in the 1st place. I'll leave things there, as this is a pointless debate if you don't even get that.

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Replying to Justin Bryant:
By Ruddles
31st May 2024 15:03

It's only pointless because you keep overlooking the central point. is that concise enough for you?

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Replying to Justin Bryant:
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By kim.shaw-and-co.com
31st May 2024 15:06

Justin Bryant wrote:

Eh? I cited one para in a court case that shows HMRC are talking nonsense there re their interpretation of a gift.

Where are they talking nonsense ? By applying the business gift rules to supply of an asset to an employee for no consideration for VAT purposes rather than treating the receipt of employees' services as valuable consideration ?

Justin Bryant wrote:

Eh? I cited one para in a court case that shows HMRC are talking nonsense there re their interpretation of a gift. Even ignoring that, employers do not generally make gifts (properly so called) to their employees. These so-called gifts are instead rewards for the employee's services (HMRC at least accept that point re CGT for EBTs). In other words, assuming the employee is not a relative/friend of the employer, if the employee didn't work in the company no so-called gift would be made in the 1st place.

Well, they often provide perks to incentivise employees too, but I guess 'properly so called' in the context of employee benefits 'gifts' of goods and services will always have some connection with the employment if that's the point you were clarifying with your link. I don't think there was any disagreement on that to be clarified. The point was rather contractual vs non-contractual.

The issue with VAT is that the receipt of an employee's services is not treated as constituting consideration for a supply as a matter of general principle, and in the absence of such treatment (or any cash consideration) the supply is treated as a business gift. Is it your contention that this practice is flawed and that the business gifts rules should not be applied (such that no output tax charge against the employer arises on the provision of the asset to the employee) ?

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Replying to kim.shaw-and-co.com:
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By Justin Bryant
31st May 2024 15:16

Absent supporting legislation/case law, I do not agree that a gift of an oven to a customer/client as a thank you or whatever is analogous to the transfer of an oven by an employer to their employees to incentivize/reward them. Google s87 CGT and EBTs and you'll see HMRC treat employer payments to EBTs as commercial transactions (so there is no bounty even of the EBT awards are discretionary by the trustees alone) and it should make no difference if the oven is transferred first to an EBT rather than direct to an employee.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg38580

Unless your name is P B-W, no-ones sets up EBTs for their clients/suppliers, so similar oven transfers to them are not analogous and are ordinary gifts (even though there's a commercial element of course).

Just coz an employee makes good the oven as explained above should not change things re VAT.

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Replying to Justin Bryant:
By Ruddles
31st May 2024 15:27

EBT, CGT, IHT. What does any of that have to do with VAT?

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