Changes in the VAT treatment of business samples
HMRC have changed their views on the VAT position concerning business samples.
They have published a new Revenue & Customs Brief (51/10) following a recent decision by the European Court of Justice (ECJ).
Where businesses provide samples of their products free of charge to individuals for marketing purposes, none of the samples are liable to VAT. The Finance Bill 2011 will contain a clause to remove the restriction that only one ‘sample’ of each product supplied to another person can be disregarded for VAT purposes.
HMRC’s position in relation to ‘gifts of small value’ has not changed as the ECJ agreed that the UK does have the right to apply the £50 limit and further is entitled to set a cumulative limit.
HMRC now accept that businesses supplying samples, treated as taxable supplies have overpaid VAT. This VAT can be recovered, subject to the usual rules and to the four year cap. Going forward, businesses may rely on the terms of the ECJ ruling when preparing VAT returns.
Businesses should be aware that there may be direct tax implications where amounts of over-declared output tax are repaid to businesses and that HMRC may reject all or part of a claim if repayment would unjustly enrich the claimant.