TikTok Shop sellers: a product for a video is not a gift

Three parcels can leave a seller's unit on the same afternoon, look identical, and carry three different VAT answers. A free sample carries no VAT. A gift carries none while what you give one person costs £50 or less a year. A product sent on condition that a creator posts a video is closest to what HMRC calls a barter, with VAT due on the normal selling price even though no money changed hands.

The three rules

All three sit in HMRC's notice on business promotions and VAT.

• Samples. HMRC defines a sample as "a specimen of a product which is intended to promote the sales of that product", one that lets its qualities be assessed "without resulting in final consumption". Free samples that fit are not liable to VAT. Quantity matters: a bottle of wine can be a sample, a case of twelve suggests more than a sample.

• Gifts. A business gift is "a definite, voluntary and unconditional transfer of the goods for no consideration". No VAT is due if the gifts to one person cost you £50 or less, excluding VAT, in a 12-month period.

• Products given in return for something. Where the person receiving the goods "agrees to do, or not to do, something in return", HMRC calls it non-monetary consideration. In paragraph 13.3 it treats products given as competition prizes, for example in magazines, in exchange for a benefit as "likely to be a barter transaction", with VAT "the same as it would be on the normal selling price of the product".

A product sent on condition of a video fails the gift test, because it is conditional. It is not a sample either. A full-size product is more than anyone needs to judge the product, which is HMRC's case of twelve bottles, and the sample rule covers free samples, which a product given for a video is not. What is left is the third rule. HMRC's business promotions notice does not mention creators, but a video in return for a product looks to me the same in substance as the magazine prize, so look at how your own deals are worded. Whatever TikTok Shop or any other platform calls the arrangement, what counts is whether the creator is obliged to post.

Thirty sets from Stratford

Illustration, not a real client. Bea's company sells skincare from Stratford and is VAT registered. Everything it sells is standard-rated. Before Christmas she sends out 200 trial sachets to creators who asked to try the range, which are samples, and ten £20 thank-you sets to long-standing customers, which are gifts under the £50 limit. Neither carries VAT.

She also sends 30 full-size sets, which sell for £60 including VAT, to creators who each agree to post a video within a fortnight. None of them is VAT registered. On HMRC's barter rule the value is the normal selling price, so each set carries £10 of VAT: £300 across the thirty. Treated as gifts, and if each set cost her £50 or less, she would have declared nothing.

Had a creator been VAT registered, their side of the swap would be a supply to Bea too, and she could reclaim the VAT on it, under the normal rules, with a valid VAT invoice.

The creator's side

The creator has a tax question of their own. HMRC's guidance on income from online platforms says income from creating content "includes gifts and services you receive from promoting products online". It is worth telling them that when you agree the deal. Our guide to how gifted products are taxed for creators covers their side. Where you pay creators in cash instead, our note on accounting for the commission you pay creators covers the deduction and the VAT invoices.

Before the next parcels go out, put the terms in writing either way. A creator who is free not to post has had a gift; one who has agreed to post has been paid.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, a UK accountancy firm for ecommerce sellers. He grew up in West London and began his career in investment banking finance at Barclays, before going full-time on Zmartly in 2020. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by Maria on Unsplash.