Free clothes

French Connection provided its employees with a quarterly clothing allowance to enable them to choose items from the company’s stock to wear as uniform.

The allowance was free unless the employee left the company within three months of receiving the items in which case they were charged 30% of the allowance used through their salary.

HMRC said the provision of clothing was a taxable supply under VATA 1994 Sch 4 para 5 and assessed the company to output tax.

The taxpayer appealed. It agreed that the free supply was subject to output tax but said HMRC had assessed it as if it were a series of business gifts.

It claimed that the items had a business purpose because they were worn as uniform; on that basis no output tax was payable (article 16 of the Principal VAT Directive).

The First-tier Tribunal was satisfied that the clothing was provided...