Business gifts

Are business gifts tax deductible?

Are business gifts to clients tax-deductible? Many business owners, including contractors, will during the course of year, look to buy their clients a gift to say thank you for the work provided to them. As a result, they will ask themselves are business gifts tax deductible.

A business owner may also look to buy gifts for business contacts at Christmas time and therefore also wonder if Christmas gifts to clients are tax-deductible.

There are certain rules to consider when we look at when gifts to customers are allowable for tax and the general rule here is business gifts are not generally tax-deductible as they fall under the same bracket as entertaining costs.

Entertaining costs and other tax-deductible allowances

Entertaining costs do not attract tax relief for your company. It is, however, better for your business to pay for these but they must be for business entertaining to count as a business expense. If you pay for these yourself, you pay for them out of your income. Your own personal income has already had tax applied to you on a personal basis. Therefore, the same concept applies to gifts as long as they are in line with the guide below.

Although you may be able to claim for gifts in some instances, two other expenses that are often missed by contractors 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.

In general

By default, when we contemplate are business gifts tax deductible, they are treated as entertaining costs, which are not tax deductible, however there are exceptions for:

  • Advertising costs in relation to customers and clients.
  • Employee gifts
  • Business gifts to charities

Taking a look at when business gifts to customers allowable for tax

As a contractor, you may wish to send a corporate gift at Christmas or at some other point during the calendar year. Therefore, when are Christmas gifts to clients tax deductible or when are gifts at another time during the year tax deductible? Within the rules, can you buy small business gifts for clients to say thank you for the work that they have provided to you? Many contractors and business owners alike choose to send gifts to customers. Indeed, they often look to buy a Christmas gift to say thank you for work that they have received as part of the business relationship.

There are two areas where tax relief is available:

  • HMRC will allow gifts up to a value of £50 to any one person in any one tax year. The gift needs to carry an advert for your business and 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-month period exceed £50, they will be treated as entertaining costs and will not be tax deductible. In addition, tax relief will not be given if the type of item if the gift is food or drink, tobacco or an exchangeable voucher. Therefore, as the rules state that the gift must be of an advertising nature it could be a calendar or diary.
  • The business can provide an item in order to advertise to the public generally e.g., a free sample of their products.

VAT

Where a business makes gifts of more than £50, or makes a series of gifts to one person that exceed £50 in total, it should account for output VAT on the value of the gifts. Output VAT does not need to be accounted for under the £50 value or where a gift is a free sample of the company’s product. However, in some cases if a free gift is in return for consideration, VAT will still be payable.

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 should not be a voucher which can be exchanged for cash. Therefore, a gift voucher which your employee can spend in a retail store will be acceptable.
  • The gift is not provided under any salary sacrifice or other arrangement.
  • The gift is not provided in the recognition of any past or future services provided by the employee. A gift at Christmas will meet this requirement.

If the cost of a gift exceeds £50, the full amount will be treated as a benefit in kind and will be taxable on both the employee and employer.

VAT

The VAT is reclaimable on the cost of a gift to an employee.

Annual event 

The `Annual Event’ is an allowance that allows you to spend up to £150 per employee, 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 will be allowed as long as the total cost is not more than £150 per person who attend.

You can also claim for the input VAT on Annual Event costs, but only on the element of input tax that relates to the company employees.

Business gifts to charities

Gifts to charities are allowed, if you make these out of your trading stock.

Cash donations to charity are generally not allowable unless these are made under Gift Aid and they are to a UK registered charity.

Final thoughts   

To sum up, when you think about whether business gifts are tax deductible, gifts for business owners, clients, staff and charities have different rules and they are another one of those grey areas where it is not always clear what you can claim. Therefore, as long as you stay within the £50 limit and you give free samples to clients, contacts etc, these will be tax deductible.

Link to Contractor Advice UK group on LinkedIn   click here

Published On: March 18th, 2021 / Categories: Expenses, Expenses Guides /

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2 Comments

  1. Andy Lynex March 25, 2021 at 12:21 pm - Reply

    As a recruitment business we give small gifts e.g. chocolates to individuals who are not fee paying clients but we do work with i.e. those looking for a job or those who recommend a friend for a job. Would treatment of these gifts be any different to that of gifts to clients do you think?

    • scott291074 March 27, 2021 at 12:49 pm - Reply

      Hi Andy, small gifts will be fine I think.

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