VAT on clothing...etc

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jamesm96
jamesm96 Registered Posts: 523
Hi guys,

A colleague has just turned to me and said 'Mike, can we reclaim VAT if Mrs X buys a suit?' and I said no. However, when I went to get her a chapter and verse, I can't find one. Are my kids keeping me up too much at night, or am I right?

(n.b. We're not talking about uniforms; the company in question don't have a set uniform other than 'smart', and there's no adverts or the suchlike, and it's only the one person in the company who gets this benefit. There's the same issue on dry cleaning).

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  • T.C.
    T.C. Registered, Tutor Posts: 1,448 Beyond epic contributor 🧙‍♂️
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    Clothing is not allowable as a tax or VAT expense unless it is solely for use in the business and clearly a "smart suit" could be worn elsewhere. You are right to say no.
  • jamesm96
    jamesm96 Registered Posts: 523
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    Always nice to know I'm not forgetting everything I know about tax. Cheers T.C.

    Where's the rule, though?
  • uknitty
    uknitty Registered Posts: 591 Epic contributor 🐘
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    I think it would just come down to the "wholly and exclusively necessary" argument.
  • T.C.
    T.C. Registered, Tutor Posts: 1,448 Beyond epic contributor 🧙‍♂️
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    I agree with uknitty!
  • reader
    reader Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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    Interesting thread.

    If the employer is going to allow the employee to take the suit home HMRC will probably argue that at least part of the recovery of input tax should be blocked due to personal use.

    However if you put the suit through the 'books' then Class 1A NIC, I would have thought, would become payable on the benefit in kind and the cost of the suit would probably have to be added back on the tax comp.

    I would have thought not recovering part of the input tax would be less costly than Class 1A NIC + fee re: preparation of P11D - partial recovery of input tax.

    If particularly expensive suits are going to be bought by the employer in future salary sacrifice might be worth looking at.
  • jamesm96
    jamesm96 Registered Posts: 523
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    uknitty wrote: »
    I think it would just come down to the "wholly and exclusively necessary" argument.

    Ah, but the 'necessarily' part only applies if it's an employee who's claiming a deduction for an expense he's incurred. In this case the company bought the suit, not the employee, in which case it just needs to be 'wholly and exclusively'.
    reader wrote:
    If the employer is going to allow the employee to take the suit home HMRC will probably argue that at least part of the recovery of input tax should be blocked due to personal use.

    However if you put the suit through the 'books' then Class 1A NIC, I would have thought, would become payable on the benefit in kind and the cost of the suit would probably have to be added back on the tax comp.

    Yeah this is exactly the conclusion I was leaning toward (although, if Class 1a NICs are paid because of the private use, why would you add the cost back on the tax comp?

    I just can't believe that there isn't a rule along the lines of 'input VAT on clothing which has an element of private use may not be recovered' as I was convinced there would be.
  • reader
    reader Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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    jamesm96 wrote: »
    Yeah this is exactly the conclusion I was leaning toward (although, if Class 1a NICs are paid because of the private use, why would you add the cost back on the tax comp?

    I just can't believe that there isn't a rule along the lines of 'input VAT on clothing which has an element of private use may not be recovered' as I was convinced there would be.

    I was thinking to add it back on the tax comp because clothing (not including protective clothing, uniforms, etc) doesn't carry a tax deduction, in the same way client entertainment doesn't carry a tax deduction.

    I have been re-thinking this and am beginning to think that there's no partial input tax to recover. I argue this because if the suit has been bought in order to meet clients HMRC may argue that the cost of the suit should be written off to the "client entertainment" expense account and recovery of input tax on client entertainment is completely blocked.

    Where was you planning to write off the cost of the suit to? Entertainment?
  • MarieNoelle
    MarieNoelle Registered, Moderator Posts: 1,368
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    Interesting thread indeed...

    One of our client at work had the same query. I just had a look through the HMRC website and found in the "expenses and benefits" section this reference

    "Technical guidance
    EIM32450: Clothing
    No deduction should be permitted under Section 336 ITEPA 2003 for the cost of ordinary clothing worn at work.

    The cost of clothing worn at work has been considered by the Courts on a number of occasions. [...]

    Many jobs require clothing of a particular type. For example, outdoor workers may require warm clothing while other workers may require lightweight clothing. There are also jobs for which the employee is required to be particularly smart. The fact that particular clothing may be necessary to carry out a particular job does not make the cost of that clothing deductible. [...]

    Similarly the fact that the clothing was only worn at work was immaterial. There was no necessity to restrict his wearing of it to his working hours. "

    I hope this helps:001_smile:
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    It's not a chapter and verse - it's case law.

    Most notably, Mallalieu v Drummond [1983] 57TC330

    http://www.hmrc.gov.uk/manuals/bimmanual/bim37910.htm
  • reader
    reader Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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    Monsoon wrote: »
    It's not a chapter and verse - it's case law.

    Most notably, Mallalieu v Drummond [1983] 57TC330

    http://www.hmrc.gov.uk/manuals/bimmanual/bim37910.htm

    Very informative link; really interest reading about object/purpose vs. effect/unintended consequence and how objects rather than effects should be considered for income tax purposes.

    However the link didn't mention anything about the recovery of input tax. Could you recover input tax if you, for example, bought and accounted for the suit under salary sacrifice?
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