Charge, reclaim and record VAT

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VAT on discounts and gifts

There are different rules for charging VAT on discounts, gifts and free services.

Charging VAT on discounts

For basic discounts (for example, a 20% off discount), charge VAT on the discounted price.

Multi-buy offers

Multi-buy offers are where the customer gets a discount for buying more items, for example 3 items for £20.

For multi-buy offers where all the items have the same VAT rate (usually standard rate), charge VAT on the combined price.

If the items in the offer have different rates of VAT, you need to use a method called ‘apportionment’.

Read section 8 of the guidance to VAT rules and procedures to find out how ‘apportionment’ works.

Link-save offers are where the customer gets a discounted (or free) second item with their purchase, for example ‘buy one, get one free’.

Use ‘apportionment’ to work out the VAT, unless the free or discounted item:

  • has a resale value of less than £1
  • has a sale value of less than £5
  • costs you less than 20% of the total of the other items in the offer
  • is not sold at a separate price from the main product

If any of the above apply, charge VAT on the combined value of items.

Charging VAT on coupons or vouchers

Do not charge VAT on either of the following:

  • a money-off coupon or voucher you give away free with another item at the time of purchase
  • ‘face value’ vouchers that can be used for more than one type of good or service (if sold at or below their monetary value)

Charge VAT when a customer uses a ‘face value’ voucher to buy something from you. If you sold the voucher at a discount, charge VAT at the discounted value.

VAT on gifts

You do not owe VAT if either of the following apply:

  • you’re giving away your own goods and services
  • the total value of gifts given to the same person in a 12-month period is less than £50

VAT on free goods and services

You usually do not owe VAT on goods and services you give away for free.

Item or service Condition to meet to be exempt from paying VAT
Free samples Used for marketing purposes and provided in a quantity that lets potential customers test the product
Free loans of business assets The cost of hiring the asset is included in something else you sell to the customer
Free services You do not get any payment or goods or services in return
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