VAT on staff clothing

There are many businesses which will purchase clothes for their employees to wear at work.  It isn’t unusual to see somebody wear a uniform for work.  This week we look at what happens in an employer gives clothing to staff and what is the position in relation to claiming back the VAT.

Uniforms or protective clothing have a clear and distinct business purpose.  Protective clothing includes helmets, steel toe capped boots, protective trousers and high visibility jackets.  If these items or uniforms are worn by an employee or a business owner for work then the VAT is recoverable as input tax on their VAT returns.

If a sole trader or partner in a business purchased smart clothing for their work, for example purchasing a suit for a business meeting, there can be a mix of business and personal usage as the suit could also be worn at a special occasion. The VAT cannot be reclaimed where there is any duality of purpose.

If the business has a specific dress code and an employer purchases appropriate clothing for their staff, it would be considered a business expense and the input tax could be reclaimed on the VAT return.  This is a key difference when claiming back VAT on clothes for staff rather than for business owners.

If clothing is given to staff so that the ownership of the clothing passes to them, this would be considered a business gift.  If the clothing cost more than £50, it would be caught by the business gift rules and you would have to account for the output tax equal to the input tax claimed which effectively cancels out the input tax.  This is treated as a notional sale to the member of staff at cost price.

If a business purchases clothing other than uniforms or protective items for members of staff, in order to ensure that the business gift rules don’t apply, the clothes should remain as owned by the business and returned to the business if the staff member leaves.  This could be written into contracts of employment or documented as a board minute.

Many businesses will provide staff with t-shirts or a  jacket with a company logo displayed on it.  These do not quite qualify as  uniform but providing they remain the property of the business, the VAT on the purchase price can be claimed back on a VAT return.

Some businesses provide clothing to staff and then charger them for the supply.  Some businesses even charge staff for their uniforms or protective clothing.  Businesses that do this can claim back the input tax on the purchase price of the clothing but have to account for output tax on the sales proceeds.

If a business supplies staff with clothing free of charge and it is not a uniform or protective clothing, it is considered as a benefit in kind for the staff member and tax may be due.  A P11D would need to be completed for this employee and the form submitted to HM Revenue and Customs.

If you need any more information, please do not hesitate to contact us on 0161 952 4244.