VAT on discounts and free gifts

Published by Rana Zubair posted in sitemap on 13 May 2021

VAT is chargeable on standard goods and services when these are offered by a registered VAT business.

The standard rate of VAT is 20% however there are different VAT rates and exemptions that available. In the UK, there are three different VAT rates, the standard rate @ 20%, the reduced rate @ 5% and the zero rate @ 0%.

The VAT rules are even complex in various circumstances for example when there are discounts or free gifts which are quite normal these days.

Have a look at our VAT Services.

https://www.gov.uk/vat-businesses/discounts-and-free-gifts

We have summarised the main aspects of VAT treatment in various situations:

Discounts and free gifts

*Situation*	*VAT treatment*
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 paid, 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