Is VAT due on clothes given to shop workers as uniforms?
The First-tier Tax Tribunal (FTT) has decided that French Connection is liable to account for VAT on the cost of its clothes given to employees to wear whilst they are working in the shops. However VAT was not due on the charge made to employees who left within three months of the start of a new season, which recouped 30 percent of that season’s used allowance.
The retailer argued that VAT was not due when the clothes were given to the staff, as the goods were provided to the staff for nothing and used for a business purpose. It contended that VAT was only due on any charges made to employees who left as it was only at that stage that a supply that could be given a value occurred.
However the FTT agreed with HM Revenue & Customs (HMRC) that a free of charge supply of business assets was made when the employee were given the clothes, and it was irrelevant that the reason for giving the employee the clothes was so that they could better carry out their duties. The free of charge provision of business assets produced a supply, the value of which was what the business would have to pay to buy identical goods. The fact if the employee left a charge would be made was also irrelevant and had no bearing on the time or value of the initial supply
It is worth noting that if the cost of goods provided to an employee is less than £50 in a year a low value relief is available and VAT would not be due.
Retailers and other businesses that supply clothing other than protective clothing to their staff that the staff are able to use outside of work, need to take notice of this judgement and consider whether they are accounting for VAT correctly at present.
If in any doubt, contact our VAT Team on 08458 502360 or contact us online for a fee initial chat.