HM Revenue and Customs Brief 51/10
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Issued 9th December 2010
VAT - change in treatment of business samples
This Brief is relevant to VAT registered businesses that give
away samples of their products.
The UK's restriction of allowing only one sample to be
supplied to one person free of VAT has been removed. This follows the
decision of the European Court of Justice (ECJ), in the case of EMI
(C-581/08) on 30 September 2010.
Businesses can make a claim to HM Revenue & Customs
(HMRC) for VAT incorrectly accounted for on supplies of samples. This
Brief provides details of how to do so.
Both EU and UK legislation require that, when goods on which
input tax has been reclaimed are disposed of for no consideration, VAT
normally becomes due. However, this does not apply to 'gifts of small
value' and 'samples', which in the UK under the VAT Act 1994 are
defined as follows:
- a limit of £50 - valued at cost - is applied to 'small
gifts'. This applies to either a single gift
- or a cumulative series of gifts, to the same person in a 12
- only one sample of each product supplied to another person
is to be disregarded
Gifts of small value
The ECJ agreed that the UK does have the right to apply the
£50 limit to 'gifts of small value' and is entitled to set a cumulative
It also stated that, where 'gifts of small value' are
specifically given by a VAT registered business to different
individuals, who have the same employer, those gifts should not be
treated as provided to one taxable person.
As the Court agreed with UK legislation with regard to
business gifts, the policy concerning these will remain unchanged.
The Court disagreed with UK policy and law concerning VAT and
samples. It stated that the UK's blanket restriction of relief to the
first sample given away was not compatible with the EU Principal VAT
Directive. It also stated that the criteria should not be restricted to
samples given to existing, or potential customers, and may cover
supplies to other parties who have an ability to influence future sales
of that product (for example, through scientific testing/analysis,
marketing activity, or via media reviews etc). However, the Court
accepted that the rules on samples need to be construed narrowly, and
defined them as follows:
Definition of a sample
The Court defined a sample as 'a specimen of a product which
is intended to promote the sales of that product and which allows the
characteristics and qualities of that product to be assessed without
resulting in final consumption, other than where final consumption is
inherent in such promotional transactions'. HMRC will apply this
Examples that would not qualify as samples
An example of an item that would not qualify as a sample is a
finished item taken from a discontinued line. Although intended to
demonstrate the type and standard of a particular range, it could not
promote sales of that product line since it was no longer available.
Another example would be a product provided in quantities
greater than necessary for its characteristics and qualities to be
assessed. If a waiter in a restaurant pours a small glass of wine as a
'taster', this would qualify as a sample, but if the restaurant
provides a regular customer with a bottle of wine, this would not meet
the 'samples' criteria.
HMRC Position and prospective changes
Following the decision in the ECJ, HMRC policy concerning VAT
and samples has changed. Where businesses provide samples (as defined
above) 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.
Implications - in respect of the current/historical treatment
The ECJ ruling means that some samples, treated as taxable
supplies under UK law, should not have been taxed. Consequently, there
is a right (limited by 'capping' legislation) to recover overpaid VAT.
Similarly, taxpayers may now rely on the terms of this ruling when
preparing VAT returns.
In the majority of cases, where VAT has been accounted for on
'samples' (as defined above) under the existing UK legislation, that
is, where more than one example of a particular product was supplied to
the same person, it is anticipated that an overpayment of VAT will have
Making claims or adjustments
Where a business wishes to make a claim to HMRC (under section
80 of the VAT Act 1994) for repayment of VAT incorrectly accounted for
in respect of supplies of samples, they may do so, subject to the
conditions set out in Notice
700/45 How to correct VAT errors and make adjustments or claims.
All claims will be subject to the four-year time limit in
section 80(4) of the VAT Act 1994 and to the set-off provisions in
section 81 of the VAT Act and section 130 of the Finance Act 2008.
There may be direct tax implications where amounts of
over-declared output tax are repaid to businesses and your attention is
Revenue & Customs Brief 14/09.
HMRC may reject all or part of a claim if repayment would
unjustly enrich the claimant.
More details on making claims and 'unjust enrichment' can be
found in VAT
Notice 700/45 How to correct VAT errors and make adjustments or claims.
For further information and advice, please contact the
Helpline on 0845 010 9000.
About the Author
© Crown Copyright 2010.
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for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs
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Article Published/Sorted/Amended on Scopulus 2010-12-27 15:37:35 in Tax Articles