Readers’ forum: VAT dilemma with gift

One of my clients trades as a clothes retailer and the business is highly profitable. His business recently gave away a very expensive wedding dress as a gift to a production company because his daughter is playing the part of Miss Haversham in Great Expectations and the dress will be used by her character in the play. The production company is a professional organisation that is registered for VAT and can apparently claim input tax. My client’s generosity has been acknowledged on the company’s website and other promotional material.

The wedding dress is worth £2 000 and my client accounted for output tax of £400 under the business gift rules – also claiming input tax on the original purchase of the dress from the supplier – and thought that was the end of the matter. However I understand from a colleague that my client could ask the production company to...