VAT on free gifts

[deniser]

I would be ever so grateful if someone could please advise me on the VAT treatment of the following.

We sell a zero rated product for £30. With it we give the customer (subject to availability) a standard rated free gift which, if taken together forms part of a set although the original product can be used without the free gift but the free gift enhances it.

What is the VAT treatment of the free gift?

Do we need to apportion the £30 between the 2 items and account for the VAT on the free gift element (about £3) or can we ignore it for VAT purposes and treat the transaction as wholly zero rated?

many thanks

[David Griffiths]

This is a mixed supply, and came up last week in this thread (http://www.ukbusinessforums.co.uk/forums/showthread.php?t=169281&highlight=mixed+supply), where there is a link to HMRC guidance

[Carl Reader]

This is a mixed supply, and came up last week in this thread, where there is a link to HMRC guidance

deniser, I'd suggest you check on the hmrc website, with the ending being /vat/managing/reclaiming/entertainment.htm - look at the section regarding business gifts to see whether VAT is actually chargable on the gift or not. By the sounds of it, probably not.

Fundamentally, the rule is that the supplies of gifts to each customer must not exceed £50 in a 12 month period (at cost).

I've had this confirmed within a ruling by hmrc regarding one of my clients.

(Sorry about the convoluted link - I haven't got enough posts to put up an actual link. Hopefully a moderator can change it?)

[David Griffiths]

deniser, I'd suggest you check on the hmrc website, with the ending being /vat/managing/reclaiming/entertainment.htm - look at the section regarding business gifts to see whether VAT is actually chargable on the gift or not. By the sounds of it, probably not.

Fundamentally, the rule is that the supplies of gifts to each customer must not exceed £50 in a 12 month period (at cost).

I've had this confirmed within a ruling by hmrc regarding one of my clients.

(Sorry about the convoluted link - I haven't got enough posts to put up an actual link. Hopefully a moderator can change it?)

The link relating to business gifts is here (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000873&propertyType=document#P12_240). The section headed "What is this notice about" makes it clear that it refers to outright gifts for which the recipient does not have to pay in cash or in kind.

That excludes "bundled items". In the case put forward by the OP, the second item does not fall within the definition of a gift because the purchaser must pay for the first item. I'm not going to look for the link, but there is precedent in this where a store tried to flog an orange for £50 and "give" something like an electric drill. It didn't work.

Gifts are typically promotional items or free samples in small sizes.