The recovery of VAT on clothing bought by a business for its staff can result in disputes with HMRC.
HMRC states that the VAT incurred by a taxable person on uniforms or protective clothing such as helmets and safety boots worn by themselves or their employees in the performance of their duties can be treated as input tax because it is a legitimate business expense.
The wig, gown and bands that a barrister is required to wear in court are considered to be a uniform and the VAT incurred is input tax. It is also a court requirement that barristers wear dark clothing.
For example, male barristers may wear striped trousers, a black jacket and a waistcoat with a white wing collar, and a female barrister, a dark (black, navy or grey) suit and a white blouse. If barristers claim that this clothing would not have been purchased if they did not have to attend court, HMRC accepts that the VAT may be deducted as input tax.
One common source of confusion is the question of whether suits qualify as a uniform; after all, surely, if the workplace requires staff to wear a suit, that is a workplace uniform? Unfortunately for office workers everywhere, HMRC has stated categorically that this is not the case.
Wearing a suit to work counts as presenting a professional image rather than actually having a workplace uniform, and even if it is a specific requirement of the workplace, this does not qualify for tax relief under the current rules.
Cases Involving VAT Recovery on Clothing
However, claiming the VAT back on other clothing might not be so simple. In B J Brown (LON/90/1681), the Tribunal dismissed the taxpayer’s argument that an art consultant required a high standard of dress to ‘create a professional image’ in order to attract business.
The provision of clothing is normally a personal responsibility. In Ms J K Hill and Mr S J Mansell, t/a J L Hill and Co (LON/86/472Z) two retailers claimed back the VAT on suits they wore for work. The Tribunal found that “to dress well in order to conform with the standards of a particular lifestyle” was not a business expense, so buying a nice suit on the business is out!
One classic case involved a musician who claimed the VAT back on a wig! HMRC paid him a visit and, not surprisingly, disallowed the VAT. The taxpayer claimed that the wig was necessary to maintain his image as a musician.
Photographs, posters, record covers, press releases and artwork (upon which his business relied) would all need to be reprinted if his appearance altered. So, he appealed to the VAT Tribunal, and they decided that the wig had indeed been purchased for the purpose of his business and he could reclaim the VAT! (JM Collie Tribunal LON/90/1382).
The VAT on clothing used solely as stage costumes is also input tax. Ordinary clothing worn by an entertainer or TV personality will usually be worn privately as well, in which case the VAT cannot normally be reclaimed.
Business Gifts Rules
Businesses can use the rules relating to business gifts in order to recover the VAT on ‘perk’ clothing (i.e., not uniforms or protective clothing). Perks are an accepted business expense; therefore, if employers decide to provide their employees with clothing, the VAT incurred is input tax.
However, if the cost of the clothes exceeds £50 in any twelve-month period, the business must account for output VAT on their value. Therefore, make sure the clothes are worth less than £50 excluding VAT in order to recover the VAT.
Practical Tip
In some circumstances, businesses can recover the VAT on clothing as a legitimate business expense, particularly on uniforms and protective clothing.