Introduction -business gifts
When you are in business, are client gifts tax-deductible (UK)? In addition, when are corporate gifts to customers tax-deductible? Many business owners, including limited company contractors, will consider buying gifts for clients at one time or another. Such 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.
A business owner may also look to buy corporate Christmas gifts for clients for specific business contacts during the festive season, or at other times during the year. Therefore, they may also wonder are corporate gifts tax-deductible.
There are specific rules to consider with regard to when corporate gifts for clients and customers may be allowable for tax. If we investigate when are business gifts to clients tax-deductible, the general rule here is they are not, as they fall under the same bracket as entertainment costs.
Entertainment costs and other tax-deductible allowances
First, for entertainment to count as a business expense, 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 gifts unless they are in line with the guide below.
Although you may be able to claim a company gift in some instances, there are two other often unknown expenses which you can claim. UK contractors and small business owners often miss these and they are Trivial Benefits and the Annual Event (Christmas Party). We cover these two areas briefly, later in this article.
Please note there are separate rules for company donations that you should consider if you are thinking about this.
Business gifts -in general
If we look at when are gifts to customers tax-deductible (UK), they are generally treated by default as entertainment costs. Therefore, when we consider are business gifts tax-deductible, they usually are not. However, there are exceptions for:
- Advertisement costs in relation to customers and clients.
- Employee gifts.
- Gifts 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 customers or clients. As a limited company contractor, you may wish to send client gifts at Christmas time. The receiver will appreciate business Christmas gifts, and such 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. Notably 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 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. Notably, they do this 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
When we consider are client gifts tax-deductible (UK), there are two areas where tax relief is available.
The first area
When we look at when are business gifts for clients tax-deductible, HM Revenue & Customs (HMRC) will allow gifts up to a value 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 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 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 on business gifts for clients 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 advertisement nature.
When we consider promotional gifts for clients, such gifts allowable for Corporation Tax could be:
- A calendar.
- A notepad.
- USB stick.
- A golf umbrella.
- Coffee mug.
- Water bottle.
- Bottle opener.
- A gift set.
- Gift baskets.
Once, again please remember that the gift should include an advert for your business.
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.
Company gifts to employees
Let us now turn to when are gifts for employees tax-deductible. Many businesses will buy corporate gifts for employees (UK) and this could be at Christmas time or another time during the year. Therefore, when a business does this, in which scenarios are employee gifts tax-deductible?
Please note, the 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, and these are:
- The gift is not cash or a cash voucher. Key to note, 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.
- 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.
Business 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-deductible business gifts for 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, 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 assts 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.
To sum up, when we consider whether business gifts and corporate gifts are tax deductible, please ensure you understand the above. Albeit if we investigate when are client gifts tax-deductible, these are as long as certain conditions are met. What’s more, 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