VAT – discounts and free gifts
When you issue an invoice to your customer, you must ensure that you charge the correct rate of VAT. Whilst most businesses in the UK charge VAT at the standard rate of 20% there are a number of different VAT rates and exemptions that you should be aware of.
In the UK, there are three separate VAT rates, the standard rate @ 20%, the reduced rate @ 5% and the zero rate @ 0%.
There are special rules when charging VAT where there are discounts or free gifts. The rules are complex, but we have summarised the main aspects below.
Discounts and free gifts
|
Offer
|
How to charge VAT
|
|
Discounts
|
Charged on the discounted price (not the full price)
|
|
Gifts
|
Charged on the gift’s full value. There are some specific exceptions on gifts given to the same person if their total value in a 12-month period is less than £50.
|
|
Multi-buys
|
Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods
|
|
Money-off coupons, vouchers etc
|
No VAT due if given away free at time of a purchase. If not, VAT due on the price charged
|
|
‘Face value’ vouchers that can be used for more than one type of good or service
|
‘Face value’ vouchers that can be used for more than one type of good or service No VAT due, if sold at or below their monetary value
|
|
Redeemed face value vouchers
|
Charged on the full value of the transaction
|
|
Redeemed face value vouchers sold at a discount
|
Charged on the discounted value of the transaction
|
|
Link-save offers (buy one get one free or discounted)
|
VAT is apportioned as mixed-rate goods - there are exceptions
|
No Advice
The content produced and presented by Streets is for general guidance and informational purposes only. It should not be construed as legal, tax, investment, financial or other advice. Furthermore, it should not be considered a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset. The information provided by Streets is of a general nature and is not specific for any individual or entity. Appropriate and tailored advice or independent research should be obtained before making any such decisions. Streets does not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of obtaining Streets' visual or audible content.
Information
The content used by Streets has been obtained from or is based on sources that we believe to be accurate and reliable. Although reasonable care has been taken in gathering the necessary information, we cannot guarantee the accuracy or completeness of any information we publish and we accept no liability for any errors or omissions in material. You should always seek specific advice prior to making any investment, legal or tax decisions.
Expert insight and news straight
to your inbox
Related Articles
VAT retail scheme
VAT retail schemes are a special set of schemes used by retail businesses to account for VAT. The schemes are used by businesses that sell a significant amount of low value and/or small quantity items to the public with different VAT liabilities. The use of the schemes can save ...
Paying VAT on goods from EU to Northern Ireland
There are special procedures for moving goods in and out of Northern Ireland. Under the Northern Ireland Protocol, all Northern Ireland businesses continue to have access to the whole UK market.
There is specific guidance published by HMRC that
Spring Budget 2024 - VAT registration threshold changes
The taxable turnover threshold that determines whether businesses should be registered for VAT will increase from £85,000 to £90,000 from 1 April 2024. The taxable turnover threshold that determines whether businesses can apply for deregistration will be increased from £83,000 to £88,000 on the same date. It had been previously ...
Share this article