Business gifts -when are gifts to clients tax deductible

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Introduction 

When you’re running your own UK contracting company or in business in general, are business gifts tax-deductible? What’s more, 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 small 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’ll ask themselves are client gifts tax-deductible (UK) 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 for business gifts 

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 aren’t tax deductions for contractors, as they fall under the same bracket as entertainment costs. However, there’s some circumstances where you’ll receive a client gift tax deduction. Therefore, if you contract in IT (or contract in another industry) we’ll investigate how a business gift is treated as part of your IT contractor tax deductions. What’s more, when they’re tax-deductible, we’ll consider some gift ideas for a contractor limited company. 

Common questions

Business owners and contractors alike will often wonder when gifts are allowable as genuine business expenses. Therefore, here’s 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’ll consider all of the above and look at the gifts to customers tax treatment. What’s more, we’ll 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’re contracting through your own company, it must be for business entertaining.

Entertainment costs don’t attract tax relief for your UK contractor limited company. However, it’s more beneficial for your business to pay for these rather than paying 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’re 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’s two other often unknown business 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 guide.

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

Business gifts (UK) -in general

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

In this guide, we’ll take a look at the above and see which gifts are taxable and which aren’t.

When are customers gifts and client gifts tax-deductible?

First thoughts

As part of considering when you receive a gift tax deduction, 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.

On the other hand, 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 gifts for clients it could lead to the relationship strengthening with possible new work in future.

Therefore, are corporate gifts tax-deductible at Christmas? On the other hand, are client gifts tax-deductible (UK) at another time during the year? Within the business gift rules, can you buy small 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’ll 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)

HMRC official guides can be found at Notice BIM45065 and VAT Notice 700/7. These give the full overview on gifts and the VAT implications. When we consider are client gifts tax-deductible (UK), there’s two areas where tax relief is available:

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 looking 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’ll not be part of your contractor’s tax-deductible expenses.

Tax relief won’t be given on certain types of gifts for clients, and this includes food, drink, and 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’s 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. Further, 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

A 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 isn’t business entertainment expenditure.

VAT on contractor gifts to customers or clients

When a UK company 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 doesn’t 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 first

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, doesn’t 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 isn’t 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 don’t provide the gift under any salary sacrifice or other arrangement.
  • You don’t provide the gift in recognition of the employee’s past or future services. Therefore, 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’ll 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 won’t be tax-deductible.

If employees’ partners come to the event, the expenses are allowable as long as the total cost isn’t 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 as a business gift. This is unless they’re 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’s no official director’s gifts allowance as such. However, there’s another tax exemption for UK company directors. This is a director’s tax-free gift allowance although it isn’t 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. As a result, you could pay this up to six times per year.

Gift tax (UK) and personal gifts

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

There’s also an annual `gift allowance’ in the UK. While you’re 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’s no UK gift tax, unless an Inheritance Tax situation arises.

HMRC’s community forums have more information from people regarding questions on this area.

Final thoughts 

To sum up, when we consider whether UK limited company contractor gifts are tax deductible, please ensure you understand the above. Nonetheless, 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 or branded gifts for clients. When you stay inside the rules, you’ll receive a business gift tax deduction.

What’s more, any company gifts for your clients, staff, and charities have different rules. The tax rules on a business gift are another one of those grey areas where it isn’t always clear what you can claim. If you stay within the £50 limit and give promotional contractor gifts to clients, contacts, etc., your business gifts will be tax deductible. Finally, if you enjoyed this read, please see our guide on tax tips for contractors and small businesses for more tax saving ideas.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: January 4th, 2024 / Categories: Expenses, Expenses Guides /

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4 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.

  2. Nat July 25, 2022 at 2:50 pm - Reply

    What if you wanted to gift a self employed contractor a birthday gift (a £50 voucher say) to say thanks for the work they have done for you etc. As they are a contractor they are not technically an employee so would the above rules on employees still count?

    • Scott Moreton July 27, 2022 at 6:30 am - Reply

      Hi Nat.

      Per the article:

      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. In addition, tax relief will not be given if the type of item is food, drink, or tobacco. Neither will it be 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 a calendar, diary, coffee mug, gift baskets, or fruit baskets.

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