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VAT refunds for firms giving away promotional samples

The UK’s tax authorities have long since applied a rule that, while companies can provide one sample copy of a product to another company without paying the VAT on that free item, any more freebies handed to the same company do incur a VAT charge.

Music company EMI, which regularly hands out promo CDs to DJs and journalists, argued that this application of the VAT rules unfairly ignored the way its industry worked and took the tax men to the European Court of Justice, which has jurisdiction over such disputes. And the Euro-judges have just ruled in the record company’s favour.

The ruling means EMI can claim back VAT paid on promo CDs for the last four years – and could open up repayments to any type of business which provides promotional goods.

“Manufacturers in the pharmaceuticals, cosmetics, fashion, wines and spirit, luxury food, and building sectors are among the many which produce goods that they routinely give to clients or potential customers as free samples to promote their business. These organisations may have been paying UK VAT for years on the value of such ‘freebies’, and now that this treatment has been determined to be incorrect, claims could amount to millions of pounds,” says Hannah Dobson, VAT director at Smith & Williamson, the accountancy and financial services group.
“It’s important to note that retrospective VAT claims are capped at four years, so businesses should lodge their VAT claim as soon as possible to maximise the pay-back,” she warns.

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