VAT on Surplus/Waste/Gift Wine

[MountainValleyWines]

My business imports wine from Montenegro and Spain. We are facing an issue with some of our old stock, which we need to get rid off. I have been informed by our accountant that if we give it away for free, or drink it ourselves (always an option) we would still be liable to pay tax. Can someone please explain this? If the wine is given as a gift it incurs 0 revenue, hence no tax is collected so what "tax" are we supposed to pay? Furthermore, since we paid VAT on import and collected none (when we give it away/throw away), should we not be able to claim the VAT back (VAT paid on import - 0 VAT collected = VAT Refund). Surely not as that way everyone would be importing and giving wine away.
Would appreciate some clarification on this and advice.

Much appreciated!

Nemanja

 

[spidersong]

You actually look to have most of the basic ideas on this, especially from your last sentence.

VAT is recoverable on all purchases you incur in the course of business, what happens is if you give it away or drink it then you haven't used it for a business purpose and hence shouldn't have recovered the VAT. If you have recovered the VAT then you've left HMRC funding your generosity (or alcoholism); as you say, no VAT on sale less VAT on purchase gives a VAT refund!

So to counter this, since VAT is a tax on the final consumer, when you become the final consumer (i.e. give it away, drink it yourself) you become liable to a VAT charge so that VAT is paid somewhere in the supply chain. This charge is normally equivelant to the VAT you recovered on those goods so that it all nets off so that you have paid VAT equal to that recovered on that particular case or bottle.

One ray of light is that you can make business gifts up to a value of £50 per recipient per year without needing to pay VAT. Another is that if you sell it to an unconnected party (i.e. not a spouse, civil partner, or relative of yourself ,or your spouse/civil partner) then you will only pay the VAT on the money you take in, so instead of giving it away you can practically give it away by charging 5p for the lot, or whatever. You can also do 'buy one get one frees' without problem as the price received will be seen under VAT law as for both bottles/cases, even if the charge is just the same as the one on the 'good' stock.

You can also just pour it away without problem as spoilage and wasteage are allowable 'uses' for VAT, but if you do this keep good records to support it (perhaps get a stocktaker or someone else to dispose of it for you, I must admit I really have no idea how best you'd find support to prove you'd poured it away), as there's nothing that peaks the VAT mans interest more than 500 bottles bought, 250 bottles sold, stock on hand nil!

Hope this helps

 

[MountainValleyWines]

Thanks! The idea of selling to someone for 5p appeals to me. lets say we paid £200 Vat on import and sold the lot for 5p (the tax on that would be 1p) can I then do £200 - 1p = £199.99 refund from HMRC?

Thanks again!

 

[3pic]

If you incur £200 VAT buying a product, that means you have paid £1,333 + £200 VAT for the stock.

If you sell the stock for 5p + 1p VAT then arguably you pay 1p over to the VATman and keep the 5p for yourself, factor in the purchase costs of £1,333 and you've made a loss of £1,328.00 factor in the input tax of £200 reclaimed on original purchase and your loss is still £1,128

I guess if you are going to tip it down a drain and make a loss you might as well not waste it and sell it for 5p to a unconnected 3rd party and make a loss but brighten someone's day.

 

[MountainValleyWines]

thanks 3pic. regarding the PnL we know we are making a loss on this batch but we want to make it as small as possible. so if there is an opportunity to claim some back (circa £200)...why not?

 

[yorkshirejames]

One ray of light is that you can make business gifts up to a value of £50 per recipient per year without needing to pay VAT. Another is that if you sell it to an unconnected party (i.e. not a spouse, civil partner, or relative of yourself ,or your spouse/civil partner) then you will only pay the VAT on the money you take in, so instead of giving it away you can practically give it away by charging 5p for the lot, or whatever. You can also do 'buy one get one frees' without problem as the price received will be seen under VAT law as for both bottles/cases, even if the charge is just the same as the one on the 'good' stock.

Isn't there some provision about trade samples too?

Where do I send my SAE and 5p to? Seriously though - is this stuff drinkable? Any more accounting/tax questions you'd like to ask?