Business Gifts and Samples: Opportunity to Reclaim Overpaid Tax?
A recent Opinion of the Advocate General (AG) of the European Court of Justice (ECJ) concerning the giving of samples and business gifts may present an opportunity for businesses to reclaim VAT which has been paid over to HM Revenue & Customs. While the AG’s Opinion is not legally binding (and we await the decision of the ECJ), businesses should consider now whether they should be filing protective claims with HM Revenue & Customs in order to ensure claims are not time-barred.
Background
The case was brought by EMI, whose business model includes distributing free copies of music to various persons in order to promote newly released music. EMI contends that this activity is necessary for its business, enabling it to assess the commercial quality of a recording as well as its viability in the market place.
The current UK VAT rules make a distinction between the giving of business gifts and samples. For business gifts, no VAT has to be accounted for provided that the cost to the donor, together with other gifts made to the same person in that year, does not exceed £50. Samples are dealt with differently: where a person is given a number of identical samples, VAT must be accounted for on all the samples apart from the first one.
In EMI’s case, HM Revenue & Customs argued that VAT had to be accounted for on goods given to the various persons as samples/business gifts. EMI argued that the UK rules are not in accordance with EU law.
AG Opinion
The AG of the ECJ has stated that the UK rules are not in accordance with EU law. First, the AG did not consider that having a cumulative 'ceiling' for all business gifts to a particular person in a period (ie the £50 annual ceiling noted above) was lawful (although he considered that a country would be allowed to fix a ceiling for the value of each individual business gift, on the basis that the exclusion from VAT should only apply to 'gifts of small value’; but the UK has not fixed such an individual ceiling).
Second, the AG considered that the UK legislation subjecting all but the first of a number of samples to VAT was unlawful.
What should I do now?
Whilst we await the legally binding ECJ decision, if you have accounted for VAT on either the provision of business gifts or samples, then you should consider whether to submit a protective claim with HMRC now. This may be important to ensure that any claims do not become time-barred. We can help you through this process, including assisting on the calculation of any overpaid tax through to submitting any claims.
Please speak to your usual contact at Mishcon de Reya or speak to
Jonathan Legg, 020 7440 7092 for further assistance.