You want to provide your staff with uniforms in keeping with your firm’s corporate image and buy clothing that is suitable to be worn at work, but what is the position regarding claiming the VAT back, and what happens if you give the clothing to your staff? Bob Johnstone investigates.
The fact that employees can reclaim VAT on their workplace clothing is fairly well known but there is confusion amongst employers and employees around the exact rules surrounding this form of tax relief. This is an area that causes a fair amount of disappointment as HMRC are very strict about what clothing does and does not qualify and you will probably be surprised by how little business clothing you can actually include.
Normally, the question of whether a given item or set of clothing is eligible for reclaiming VAT can be settled with a look at these essential rules.
Workplace Uniforms and Protective Clothing
Uniforms and protective clothing have a clear business purpose. If the uniform or protective clothing is worn by employees of a business (including directors), then the VAT is recoverable. The same is true if it’s worn by a sole proprietor or partner. But deciding what counts as a uniform can be tricky. HMRC says a uniform is clothing that can be ‘readily be recognised by a person in the street’. Requiring employees to follow a corporate dress code, say a black suit and white shirt, isn’t enough, it must obviously be a uniform. But the inclusion of your firm’s logo, if sufficiently obvious and recognisable, can turn an otherwise ordinary item of clothing into a uniform.
Clothing is deemed protective if it is ‘worn as a matter of physical necessity because of the nature of the job’. Protective clothing includes helmets, high visibility jackets, protective gloves, overalls, steel toe capped boots and protective trousers for use with a chainsaw.
Input tax can still be claimed even if the protective clothing or uniforms are given to staff and are no longer owned by the business.
If an employee has a workplace uniform which they have had to purchase themselves, then this will be eligible for reclaimed VAT. There may also be tax relief available on the costs associated with laundering and maintaining the uniform.
One common source of confusion is the question of whether or not a suit would qualify. Surely, if you are required to wear a suit at work, that is your workplace uniform? And if you have purchased that suit yourself specifically so that you can wear it in the workplace in line with your employer’s requirements, then it is workwear? Unfortunately for suit wearing workers everywhere, HMRC has stated categorically that this is not the case.
Wearing a suit to work is classed 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.
If a sole proprietor or partner in a business buys clothes for their work, for example an accountant buying a suit for business meetings, there is a mix of business and personal usage, as they could also wear it at the weekend to attend a wedding. The VAT cannot be reclaimed where there is a dual purpose like this. However, if your business has a dress code and you buy appropriate clothing for your staff, this would be considered a business expense and the input tax could be reclaimed. This is a key difference when claiming back VAT on clothes for staff members rather than the business owners.
If you give the clothing to your staff so that ownership 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 output tax equal to the input tax claimed – effectively cancelling it out. This is treated as a notional sale to the member of staff as cost price.
If you purchase clothing other than uniforms or protective items for your staff, don’t give them the clothes. Make sure they remain owned by the business and have to be returned if the member of staff leaves. This is so that the business gift rules don’t apply. This could be written into contracts of employment or documented as a board minute.
Clothing with a logo
Some businesses provide staff with T-shirts or a fleece with a company logo displayed on it. These don’t quite qualify as a uniform but providing they remain the property of the business you can claim the input tax back on their purchase price.
Selling clothing to staff
Some businesses provide clothing to staff and then charge 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 sale proceeds.
If a business supplies staff with clothing free of charge and it is not a uniform or protective clothing, it can be considered a benefit in kind for the staff member and tax may be due.
Despite the perceived complexities, these rules are ultimately based around one simple principle.
To be eligible for employees to claim tax relief, clothing must be specifically and exclusively for the workplace. It must not be regular everyday clothing, even if it is only worn for work, and it cannot be clothing that you use regularly except as workwear.
But in theory, any item of clothing that you can demonstrate is exclusively for workplace use can qualify. However, this is unlikely to be the case outside of the categories outlined above. Also, it does not change the fact that a suit does not qualify even if it is used for work, partly because HMRC considers dress codes to be separate from formal company uniforms.
You can reclaim VAT incurred on uniforms or protective clothing, even if you give them to staff members. You can provide other clothing and recover VAT as long as your business retains ownership. If you give such items to staff, and they cost more than £50, it is treated as a notional sale with output tax applicable.