Businesses in line for VAT windfall on retail samples

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Companies who use promotional samples to sell their products could be in line for a VAT windfall after a European Court of Justice (ECJ) judgement on the UK’s rules on VAT for samples, according to business advisors and auditors, Baker Tilly.

Sian Beusch, technical associate director, Baker Tilly, said: “Businesses who use promotional samples as sales tools across the music, drinks and retail industries have been given an early Christmas present thanks to the ECJ judgement.

“The ECJ has delivered its final judgement concerning whether the UK’s rules on the VAT treatment of gifts and samples is compatible with EU law.  In short, the Court found that the UK VAT rules for gifts are largely compatible, whereas the rules for samples are not.

“Under the UK rules, where a number of identical samples are given to the same person only the first sample is free from VAT. However, the ECJ found that all samples should be VAT-free provided the sample is a specimen of a product which is intended to promote sales and which allows the characteristics and qualities of that product to be assessed, without resulting in final consumption.

“In light of this judgement the opportunity to recover VAT paid to HMRC on samples over the last four years has been confirmed, and taxpayers distributing large volumes of samples should begin preparation of their claims immediately, if they have not already done so.”