It’s the season of giving, but how do business gifts work from the taxman’s point of view?
If you’ve gone to buy some gifts for your clients or team, but hovered over the checkout button, not knowing how they’ll affect your tax liability, let’s break it down for you.
There’s still just about enough time to make that last minute purchase!
In general, when you buy gifts for your customers they are treated as ‘entertaining’. As a result no reduction in your tax bill is given. You are also unable to reclaim VAT on these gifts. There are however a few exceptions to this rule.
You still can give gifts to suppliers, customers etc – there is just no tax advantage to doing so. You should make a clear note in your records of which customers/clients/suppliers where given gifts to be sure you can prove these were not for your own consumption!
Generally if you give your employees a gift, this is deductible against your tax bill (i.e. reduces your taxable profits). You can also reclaim the VAT on this gift if you are VAT registered.
You do however need to be careful on the value of these gifts, otherwise you will cause the individual employee a tax bill. £50 is a good limit, as this will fall under the ‘trivial benefits’ rule currently available. If a gift is made under this rule, it is not taxable on the employee.
You can give a stock sample, or other item incorporating an advertisement, provided that it costs less than £50 (and is not part of a serious of gifts before you start down that road!). This is tax deductible.
In most circumstances no tax deduction is allowed however if the item is food, drink, tobacco or exchangeable voucher. The £50 limit is per accounting year.
VAT can be reclaimable on the costs of these gifts. However, if this gift is over £50, in short you will have to effectively cancel out the VAT claim, so best to stick to the £50 limit.
If you need any guidance on this, be sure to get in touch with the team – we’d love to help.