(scotland) Limited
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VAT may be due on clothing (i.e. uniforms) provided to staff free of charge, even when employees are obliged to wear the clothing whilst on duty.

A recent First-tier Tribunal ('FTT') decision involving the retailer French Connection Limited ('FCL') found in favour of HMRC and confirmed therefore the provision of clothing free of charge is a taxable supply for VAT purposes.

FCL provides a clothing allowance to staff, enabling them to choose items from FCL's stock up to the amount of the allowance. Employees were required to wear such clothing when on duty, together with a badge identifying them as a staff member. If a staff member left within three- months of the start of the relevant season, the staff member had no requirement to return the clothing but their pay was reduced by 30% of the clothing allowance used.

HMRC considered that FCL provided goods free of charge to the staff member and, consequently, there was a deemed supply of goods and, therefore, output tax (VAT) was due in respect of such supplies. The value of the deemed supply was to be the cost to purchase identical goods (i.e. the retail price of the goods).

In providing its decision, the FTT held that the provision of clothing to staff was for the purposes of the business but it was not a 'uniform', largely because staff could choose from a wide range of clothing and were indistinguishable from customers, apart from wearing their name badge. The FTT also added that the provision of clothing was irrelevant in this case in determining whether a VAT liability was due under the £50 rules for a series of business gifts.

The FTT's decision was to achieve neutrality in ensuring that where input tax (VAT) is deducted, output tax (VAT) is charged when goods are taken out of the business i.e. because the clothes were goods in which input tax (VAT) recovery had been given, the value of the deemed supply was what FCL would have to pay if, at the time of the supply, it purchased identical clothing, including age and condition, to those provided to its staff members.

Finally, the FTT considered that it made no difference whether or not the clothing was a 'uniform' since title to the goods (i.e. clothing) had transferred to the staff members at the time the clothing was issued.

The implications of this decision will affect those businesses providing uniform clothing and other 'tools of trade' to their staff, without charge at the time the goods are being provided, even when it is clear that they are being provided for the purposes of the business.

Who is potentially affected?

Retailers and other business and organisations providing staff with uniforms and other 'tools of trade'

How can VAT Services (Scotland) Ltd help you?

To assist your business or organisation with reviewing its own arrangement of providing uniforms and other goods to staff to determine if the disposal of goods free of charge will trigger a VAT charge on a deemed supply.

Contact us

Should you wish further information on the above, please do not hesitate to contact Gary using the details outlined below.


Gary Moore
Direct line 0141 636 9353
Mobile 07812 061 582
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