It is commonly thought that where a business supplies something for no payment to an employee or director, this is a 'perk of the job' and has no tax consequences.
In the case of VAT, this is true where a gift is given to a person and the total of gifts given in a year is less than £50. If the total exceeds that figure, output tax must be paid on the total value of gifts made to that person in the year.
When a firm 'swaps' goods or services for other goods or services, the deemed value of the outputs for VAT purposes is the market value of the goods or services received.
However, VAT is only one issue. When a business gives goods or services to employees, there are also potential tax consequences for the business in the form of restriction of allowable deductions for tax purposes of the expenditure on the items or services supplied free of charge. Furthermore, there may be a potential benefit in kind for the employee…which will be calculated on the market value of the supply made including any applicable VAT.
It should also be noted that input tax relating to business entertainment is blocked and special rules apply to the tax treatment of staff entertainment.
In general, just because money does not pass hands, that does not mean that there is no tax to pay.