Are business gifts to clients tax-deductible? In addition, when are gifts to customers tax-deductible?
Many business owners, including contractors, look to buy corporate gifts for clients at one time or another to say thank you for the work provided to them during the calendar year. As a result, they will ask themselves are business gifts tax-deductible?
A business owner may also look to buy company gifts for specific business contacts at Christmas time or at other times during the year. Therefore, they may also wonder are corporate gifts tax-deductible.
There are specific rules to consider regarding when corporate gifts for clients and customers may be allowable for tax. When we investigate are business gifts tax-deductible, the general rule here is they are not, as they fall under the same bracket as entertaining costs.
Entertaining costs and other tax-deductible allowances
First, for entertaining to count as a business expense, it must be for business entertaining.
Entertaining costs do not attract tax relief for your company. However, it is more beneficial for your business to pay for these rather than pay for them yourself as an individual. If you pay for these yourself, you pay for them out of your income, which has already had tax applied to this personally. Therefore, the same concept in terms of tax treatment applies to gifts unless they are in line with the guide below.
Although you may be able to claim company gifts in some instances, there are two other expenses you could claim. Contractors and small business owners often miss these and they are Trivial Benefits and the Annual Event (Christmas Party).
Please note there are separate rules for company donations that you should consider if you are thinking about this.
When we look at when are gifts to customers tax-deductible, they are generally treated by default as entertaining costs. These are not tax-deductible. However, there are exceptions for:
- Advertising costs in relation to customers and clients.
When business gifts to customers are allowable for tax
As part of when we look at when are business gifts tax-deductible, one of the exceptions is for company gifts to customers or clients. As a contractor, you may wish to send a corporate gift at Christmas time. Alternatively, you may want to send client gifts at some other point during the calendar year.
Therefore, are corporate gifts tax-deductible at Christmas or at another time during the year? Within the rules, can you buy small business gifts for clients to say thank you for the work that they provide to you? Many contractors and business owners alike choose to send gifts to customers. Indeed, they often look to buy gifts at Christmas. Notably, they do this to thank the client for the work they receive as part of the business relationship.
Customers and clients
When we consider are corporate gifts tax-deductible, there are two areas where tax relief is available.
The first area
HM Revenue & Customs (HMRC) will allow gifts up to a value of £50 to any person in any tax year. The gift needs to carry an advert for your business. It can be a conspicuous advertisement. However, your business name needs to be clearly visible. If the gift (or gifts) to the person in any 12 months exceed £50, they will be treated as entertaining costs and will not be tax deductible.
Tax relief will not be given if the type of item is food, drink, or tobacco. Neither is it given if the gift is an exchangeable voucher, such as a gift card. Therefore, as the rules state, the gift must be of an advertising nature.
When considering gift ideas, this could be:
The second area
The business can provide an item or product to advertise to the public. For example, this can be a free sample of their products.
VAT on gifts to customers or clients
When a business makes gifts of more than £50 or makes a series of gifts to one person that exceeds £50 in total, it should account for output VAT on the value of the gifts. Output VAT does not need accounting for under the £50 value. Neither does it need accounting for where a gift is a free sample of the company’s product. However, in some cases, VAT will still be payable if a gift is in return for consideration.
Gifts to your company’s employees
You can give gifts to your employees as long as the total cost, including VAT, does not exceed £50 per employee. There are additional conditions to bear in mind, and these are:
- The gift is not cash or a cash voucher -it cannot be a voucher that can be exchanged for cash. Therefore, a gift voucher your employee can spend in a retail store will be acceptable.
- You do not provide the gift under any salary sacrifice or other arrangement.
- You do not provide the gift in recognition of the employee’s past or future services. A gift at Christmas will meet this requirement.
If the cost of a gift exceeds £50, the total amount is treated as a benefit in kind. Therefore, this will be taxable on both the employee and employer.
VAT on gifts to employees
The VAT is reclaimable on the cost of a gift to an employee.
The `annual event’ for employees or directors
The `Annual Event’ is an allowance that allows you to spend up to £150 per employee. This can be spent on an event or part of a series of events.
If you go over the £150 limit per employee, the whole amount will not be tax-deductible.
If employees’ partners come to the event, the expenses are allowable as long as the total cost is not more than £150 per person who attends.
You can also claim the input VAT on Annual Event costs. However, you can only claim the input tax element that relates to the company employees.
Gifts to charities
Gifts to charities are allowable if you make these out of your trading stock.
Cash donations to charity are generally not allowable. This is unless these are made under Gift Aid and are to a UK-registered charity.
Tax exemption for company directors
Apart from the exceptions which we detail above, there is no official director’s gifts allowance as such. As alluded to earlier, your company can now pay Trivial Benefits. This allowance came in on 6 April 2016 and enables `close companies’ (these are companies with five directors or less) to pay Trivial Benefits of up to £300 per year. The limit each time you pay a Trivial Benefit is £50 therefore you could pay this up to six times per year.
To sum up, when we consider whether gifts for business and work contacts are tax deductible, please ensure you understand the above. Gifts for business owners, clients, staff, and charities have different rules. They are another one of those grey areas where it is not always clear what you can claim. Finally, as long as you stay within the £50 limit and give promotional gifts to clients, contacts, etc., these will be tax deductible.
Link to Contractor Advice UK group on