- Deemed Supply Rules: When a VAT-registered business gives away goods for free, it may trigger a deemed supply, resulting in an output VAT charge if input VAT was previously reclaimed on those goods. The valuation for VAT purposes must follow a specific hierarchy: identical goods’ purchase price, similar goods’ purchase price, or production cost.
- Exceptions for Gifts and Samples: There are exceptions to the deemed supply rules, including the small business gifts rule (gifts under £50 to the same recipient within a year) and the business samples rule (free samples provided for marketing purposes). If these conditions are met, no VAT is due.
- VAT Recovery for Recipients: If a deemed supply occurs, the recipient can reclaim the VAT if the donor provides a tax certificate instead of a VAT invoice. Additionally, if a gift is sold by a VAT-registered person, it is treated as a normal supply and subject to VAT.
Source CJMTax
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