Weekly tax brief
How to give away your stock without giving away the VAT
27 May 2020
When first forced to close for the coronavirus lockdown, many businesses – particularly in the retail, hospitality and horticultural sectors – have found themselves left with perishable stock that they cannot sell.
As a result, some have had no alternative but to dispose of goods that are no longer fit for their intended use, while others are giving away stock that would otherwise spoil in the hope that the recipient makes a donation to the business. This could be a much-needed lifeline while income streams are limited by the coronavirus crisis.
While it is encouraging to see businesses implementing innovative ideas to generate income during the pandemic, it can be easy to overlook the potential VAT consequences of transactions that fall outside its usual business model.
Where a business has recovered VAT on goods it buys for resale it is, in principle, required to account for output VAT at cost value if it gives away or otherwise disposes of the goods instead of selling them. However, there are exceptions to this rule which may be helpful in the current circumstances:
The first of these may be useful to traders who have given away low value items to various recipients: VAT does not need to be accounted for on goods given away as gifts to any one person when their VAT exclusive value does not exceed £50, in any twelve month period. HMRC expects businesses to keep a register of some sort to prove that this limit has not been exceeded.
Likewise, in the event that spoiled goods have to be destroyed rather than given away, no VAT would be due on their disposal and the business would retain entitlement to full VAT recovery on the original purchase. In such circumstances, a record should be kept of their destruction in case HMRC demands supporting evidence at a later date. Otherwise HMRC may believe the goods have been sold or given away and assess for undeclared output VAT.
It is also important to show that any payments qualify as a donation under VAT rules. HMRC may look for evidence that it was made clear that donations were voluntary and whether and how much money to donate was at the discretion of the donor. If the payment was simply a discounted price set by the seller in exchange for items close to their expiry date, it could be subject to VAT. Screen shots of social media posts offering free goods may be useful supporting evidence.
Taking time to keep some simple records could be the difference between keeping and losing the VAT recovery and reliefs your business might be entitled to in these difficult times.
As a result, some have had no alternative but to dispose of goods that are no longer fit for their intended use, while others are giving away stock that would otherwise spoil in the hope that the recipient makes a donation to the business. This could be a much-needed lifeline while income streams are limited by the coronavirus crisis.
While it is encouraging to see businesses implementing innovative ideas to generate income during the pandemic, it can be easy to overlook the potential VAT consequences of transactions that fall outside its usual business model.
Where a business has recovered VAT on goods it buys for resale it is, in principle, required to account for output VAT at cost value if it gives away or otherwise disposes of the goods instead of selling them. However, there are exceptions to this rule which may be helpful in the current circumstances:
The first of these may be useful to traders who have given away low value items to various recipients: VAT does not need to be accounted for on goods given away as gifts to any one person when their VAT exclusive value does not exceed £50, in any twelve month period. HMRC expects businesses to keep a register of some sort to prove that this limit has not been exceeded.
Likewise, in the event that spoiled goods have to be destroyed rather than given away, no VAT would be due on their disposal and the business would retain entitlement to full VAT recovery on the original purchase. In such circumstances, a record should be kept of their destruction in case HMRC demands supporting evidence at a later date. Otherwise HMRC may believe the goods have been sold or given away and assess for undeclared output VAT.
It is also important to show that any payments qualify as a donation under VAT rules. HMRC may look for evidence that it was made clear that donations were voluntary and whether and how much money to donate was at the discretion of the donor. If the payment was simply a discounted price set by the seller in exchange for items close to their expiry date, it could be subject to VAT. Screen shots of social media posts offering free goods may be useful supporting evidence.
Taking time to keep some simple records could be the difference between keeping and losing the VAT recovery and reliefs your business might be entitled to in these difficult times.
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