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VAT – discounts and free gifts

Source: HM Revenue & Customs | | 19/05/2022

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

 

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McAllisters is a partnership trading from Paxton House, 11 Woodside Crescent, Glasgow providing accountancy and tax services and general business advice and is a member of ICAS (Registration No 0342) and an FCA exempt professional firm (No 301235). Its VAT number is 261 3019 94

McAllisters (Scotland) Ltd is a related business providing tax and business advisory services to McAllisters and its clients. McAllisters (Scotland) Ltd is registered in Scotland (Registration number SC146856). Its VAT number is 624 0564 62.

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