Business gifts -learn when they are tax deductible

Introduction -business gifts (HMRC)

When you are in UK contracting or business in general, are client gifts tax-deductible (UK)? In addition, when are business corporate gifts to customers tax-deductible? Further, as a contractor when are client gifts allowable for Corporation Tax? Lots of business owners, including limited company contractors, will consider buying gifts for clients at one time or another. This could include a gift box, gift set or a calendar for the following year. Any business gifts for clients will be to say thank you for the work provided to them during the course of the calendar year. As a result of such business thank you gifts, they will ask themselves are business gifts tax-deductible and when are Christmas gifts for clients tax-deductible.

A business owner may also look to buy corporate Christmas gifts for clients. Indeed, these could be for specific business contacts during the festive season. What’s more, they may also look into buying a business gift, corporate gift (UK) or thank you gifts for clients at other times during the year. Therefore, a business owner may ask are corporate gifts tax-deductible and if so, when are gifts to clients’ tax deductible (UK)?

Initial thoughts

What to consider first

There are specific rules to consider with regard to when corporate gifts for clients and customers are allowable for tax. If we investigate when are business gifts to clients tax-deductible, the general guide here is, under the rules of HMRC, gifts to customers are not tax deductions for contractors, as they fall under the same bracket as entertainment costs. However, there are some circumstances where you will receive a client gift tax deduction. Therefore, if you contract in IT (or contract in another industry) we will investigate how a business gift is treated as part of your IT contractor tax deductions. What’s more, when they are tax-deductible, we will consider some gift ideas for a contractor limited company.

Common questions

Business owners and contractors alike, will often wonder when are gifts allowable as business expenses. Therefore, here are some common questions and thoughts which may arise:

• Are gifts for clients tax-deductible?

• Are gift cards tax-deductible for a business?

• Can I claim for a business gift?

• Are gifts taxable (UK)?

• When is a gift a business expense?

• Can you claim VAT back on client gifts?

• How much can I gift tax free?

• How much is gift tax (UK)?

In this guide, we will consider all of the above and look at the gifts to customers tax treatment. What’s more, we will look into what qualifies as tax-deductible gifts.

Entertainment costs and other tax-deductible allowances

First, for entertainment to count as a business expense while you are contracting through your own company, it must be for business entertaining.

Entertainment costs do not attract tax relief for your UK contractor limited 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 limited company contractor gifts, unless they are in line with the guide below.

Although you may be able to claim the cost of a company gift as part of your tax deductions as a contractor in some instances, there are two other often unknown expenses which you can claim. UK contractors and small business owners often miss these and the first is Trivial Benefits. As a contractor or small business owner, another expense you can claim is the Annual Event (Christmas Party). We cover these two areas briefly, later in this article.

It is key to note that there are separate rules for company donations. Indeed, you should take a look at these if you are thinking about this.

Business gifts (UK) -in general

If we look at when are contractor limited company gifts to customers tax-deductible (UK), they are generally treated by default as entertainment costs. Therefore, when we ask are business gifts tax deductible, usually they are not. However, if we investigate further when are gifts tax-deductible (UK), there are exceptions for:

• Advertisement costs in relation to a contractor’s customers and clients.

• Gifts to any employees of your business.

• Any gifts from your company to charities.

When are customers gifts and client gifts tax-deductible? 

As part of considering when are business gifts tax-deductible, one of the exceptions is for company gifts to clients or customers. As a limited company contractor, you may wish to send corporate client gifts at Christmas time. Basically, this could be a thoughtful gift to say thank you for the business provided during the course of the year. Indeed, business Christmas gifts for customers will be appreciated by the receivers. In addition, any contractor gifts for customers could even lead to more work for you from them in the future.

Alternatively, you may want to send customer gifts at some other point during the calendar year. This could include gifts for business customers when you complete a contract or piece of work for them. Such corporate thank you gifts would also be welcome by the receiver. Indeed, when you purchase business gifts for clients it could lead to the relationship strengthening with possible new work in future.

Therefore, are corporate gifts tax-deductible at Christmas? Alternatively, are client gifts tax-deductible (UK) at another time during the year? Within the business gift rules, can you buy small business gifts for clients to say thank you for the work that they provide to you? Many UK contractors and business owners alike choose to send corporate gifts to clients. Indeed, they often look to buy thank you gifts for business clients at Christmas. Basically, they will look for a great gift to thank the client for the work they receive as part of the business relationship.

Business gifts to customers and clients –tax deduction for client gifts (UK)

When we consider are client gifts tax-deductible (UK), there are two areas where tax relief is available for business gifts (UK).

The first area to consider for a for a business gifts tax deduction

The annual limit

When we look at when are business gifts for clients tax-deductible, HM Revenue & Customs (HMRC) will allow gifts up to a business gift limit of £50 to any person in any tax year. The same applies when we look at when are customer gifts tax-deductible. The important thing to remember is the contractor gift needs to carry an advert for your business. It can be a conspicuous advertisement. However, your business name should to be clearly visible. If the limited company contractor gift (or gifts) to the person in any 12 months exceed £50, they will be treated as entertaining costs. As a result, they will not be part of your contractor’s tax-deductible expenses.

Tax relief will not be given on business gifts for clients if the type of item is food, drink, or tobacco. Neither is it given if the business gift is an exchangeable voucher, such as a gift card. Therefore, as the rules state, the contractor limited company gift must be of an advertisement nature.

Company gift ideas

When we consider the gifts allowable for Corporation Tax, we should take the time to look at some corporate gift ideas for clients. Therefore, when we think about promotional gifts for clients, where should we start? Basically, if we think about some business gift ideas, we should consider personalised business gifts and branded Christmas gifts for clients. Indeed, on such gifts you can show your company logo or business name. What’s more, there are plenty of different types of gift ideas for contractors to consider and as such, your contractor gift ideas could include:

• Gift boxes.

• Calendars.

• Diaries.

• Notepads.

• USB sticks.

• Golf umbrellas.

• Coffee mugs.

• Water bottles.

• Bottle openers.

• Gift sets.

• Gift baskets.

Once, again please remember that any business gift should include an advert for your business. What’s more you could look on the internet for a business gifts company. In addition, you could search and see if they have any new business gift ideas for this year.

The second area to consider for a for a business gifts tax deduction

The business can provide free samples of their products to the public for advertising purposes. As a result, the cost of these free samples is a tax-deductible expense. This is because the cost to the business for giving away its products for advertising is not business entertainment expenditure.

VAT on contractor gifts to customers or clients

When a UK company makes business 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.

Business and company gifts to employees

What to consider 

Let’s now turn to when are gifts for employees tax-deductible. Basically, many businesses will buy corporate gifts for employees (UK) at one time or another during the year. Indeed, this could be staff Christmas presents for your employees during the festive season. As part of this, you may decide to buy business gift vouchers or business gift cards for your employees for a certain store. Therefore, when you take the time to treat your employees, are gift cards tax deductible? In addition, when a business buys gifts for staff, when are employee gifts tax-deductible?

The official rules state that you can give company gifts to employees if the total cost, inclusive of VAT, does not exceed £50 per employee. There are additional conditions to bear in mind for staff gifts, and these are:

• The contractor gift to a staff member is not cash or a cash voucher. Basically, this cannot be a voucher that can be exchanged for cash. Therefore, Christmas vouchers for staff which they can spend in a retail store will be acceptable. As a result, you could put through a gift card business expense if you buy a gift card for one of your employees.

• 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. As a result, the tax on gifts (UK) will be at the employer and employee tax rates.

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

What to consider for a business gift to charity

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-deductible business gifts to directors

When can a business provide gifts for company directors? Apart from the exceptions which we detail above, there is no official director’s gifts allowance as such. However, there is another tax exemption for UK company directors. This is a director’s tax-free gift allowance although it is not officially described as this.

As we allude 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.

Gift tax (UK) and personal gifts

If we consider UK gifts tax, there is no tax due on any personal gifts which you give. However, this is provided you live for seven years after you give them. That is unless the gift is part of a trust.

There is also an annual `gift allowance’ in the UK. While you are alive, the `gift allowance’ is £3,000 a year. This means you can gift assets or cash, up to a value of £3,000 each tax year, without it being added to the value of your estate for Inheritance Tax purposes. Therefore, there is no UK gift tax, unless an Inheritance Tax situation arises.

Final thoughts 

To sum up, when we consider whether UK limited company contractor business gifts are tax deductible, please ensure you understand the above. Albeit if we investigate when are client gifts tax-deductible, these do receive tax relief as long as certain conditions are met. When you buy gifts for your clients, please stay within the £50 limit. In addition, please use personalised business gifts or branded gifts for clients. When you stay inside the rules, you will receive a business gift tax deduction.

What’s more, gifts for business owners, clients, staff, and charities have different rules. The tax rules on a business gift are another one of those grey areas where it is not always clear what you can claim. As a final note, as long as you stay within the £50 limit and give promotional contractor gifts to clients, contacts, etc., your business gifts will be tax deductible.

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