VAT is due on clothing given to employees

The high street retailer French Connection has recently lost a case before the Tribunal concerning whether or not VAT is due on the supply of clothes to their employees. The retailer required employees in their shops to wear clothes from the current range and these were supplied free of charge.

The case concerned whether or not there was a taxable supply for VAT purposes. The retailer relied on VAT Notice 700 which states “You do not make a supply if you provide goods (such as overalls or tools) to employees solely for the purpose of their employment and make no charge.”

The Tribunal held that the clothes did not qualify as a uniform and as the value of the clothes gifted in one year exceeded £50 then output tax was due on the value of the clothes supplied (cost to the employer).

Note that VAT may be due on many employee benefits such as private petrol and is something that is frequently checked by HMRC if they make a visit to examine your records.