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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Challenge of selected purchases and importations: gifts, samples, applications to personal use for example

  • goods produced or acquired by the trader which are applied to a purpose that is not part of the business (applied to personal use, given away, hired or loaned to relatives or friends for example), must be treated as a taxable supply. A typical example would be items removed from shelves by retailers for their own use;
  • when goods are applied to such non-business use, tax is chargeable on their cost price to the trader or, in the case of made goods, the cost of manufacture including overheads;
  • no tax is chargeable on services given free by registered traders for the purposes of their business. However, be aware that there may be a consideration, other than money, for the supply of services, such as goods or other services may have been received in exchange;
  • detailed guidance on business gifts and free samples is given in VATSC - Supply and Consideration;
  • officers should ensure that traders are maintaining adequate records of goods and services applied to personal use and business gifts (whether or not tax is payable) as part of their record of outputs;
  • some business gifts may be included in the general ledger, or in the accounts, under such headings as entertaining and promotions; and
  • the Direct Tax form P11D is a declaration of benefits in kind received by staff and may provide a time efficient way of identifying some of the non-deductible purchases.