This again shows how complex VAT can be in what might appear to be a straightforward situation.
A client is unable to trade normally due to the current restrictions and is considering using their staff and resources to manufacture visors which would be gifted to the NHS. The visors will show their logo. They intend to finance this activity via crowd funding and wonder whether VAT will need to be accounted for on the crowd-funded income?
Will there be any input tax restriction in relation to the costs of producing the gifted items?
The crowdfunding income is not deemed to arise from a supply of goods or services to the person making the payment and this means that it is not treated as consideration and not subject to VAT.
The visors produced will be donated to the NHS and it is possible to see the costs incurred in producing the visors in two different ways:
The first is that the costs incurred have no business purpose. Strictly speaking entitlement to VAT recovery depends on the application of that cost to a taxable business purpose; thus, non-business activity could be seen to restrict recovery of input tax on both the directly related costs, and a proportion of overheads.
The second, and arguably more reasonable, way to see this is that the equipment is being given away as business gifts. The business logo is being shown on the visor, and while not the primary rider, this will show the business in a good light. Under business gift rules, input tax is recoverable in full, and if the total cost to the supplier of all the gifts to one person does not exceed £50 in any 12-month period there is no requirement to account for output tax.
Output tax on the cost value of the gifts will be required to be accounted for if the cost of gifts to one person does exceed £50 in any 12-month period. However, providing the NHS with a tax certificate similar to a VAT invoice may enable that VAT to be recovered by the NHS.
HMRC have not, to date, provided any guidance on PPE products being given away in such circumstances, but it seems likely that they will take a pragmatic view of the recovery of related input tax.
If the NHS was receiving donated funds, and then purchasing the items using those funds, the supply of the goods would be zero rated. Similarly, if a client personally raised the funds and then purchased the goods from the company to donate to the NHS the sale by the company would be zero rated.
Reproduced from Croner Taxwise