A business gift isn’t just for Christmas or birthdays. You can give corporate gifts at any time of year, but how do business gifts work from the HMRC’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.
Business gifts
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.
Rest assured, you still can give gifts to suppliers, customers etc. Just be aware there is no tax deduction/relief. You should also make a clear note in your records of which customers/clients/suppliers were given what gifts. You need to prove to HMRC that these were not for your own consumption!
However, there are a couple of ways to achieve a tax deduction for a gift to a customer:
- Give your customers free samples of your product
- Give gifts that contain clear advertising for your business which:
- Cost less than £50
AND
-
- Are not food, drink, tobacco or vouchers that can be traded for cash
Employee Gifts
When it comes to giving gifts to your team, the tax rules are a little more generous. However, they do come with a list of criteria you need to meet!
The tax law that covers this type of gift is more commonly known as the Trivial Benefit rules. Your gifts need to be:
- Worth no more than £50. It’s all or nothing, so if the gift is worth £52, it’s all taxable.
- The benefit is not cash.
- The benefit is not provided in recognition of the employee’s service (say hitting a target) or as part of their contract
- It can’t be part of a regular series of gifts. HMRC gives an example in their guidance of a cake each Friday.
- The company needs to incur the expense. You can’t reimburse yourself or your team member for the cost.
- This rule still applies to you if you are a single director – so buy yourself something nice :-).
If you are VAT registered, the VAT may well be reclaimable (under the normal rules).
An extra thought
The allowances and limits set out above are aimed to be tax efficient. This is not a ‘cap’. You can spend what you like, but these are the limits if you want the best treatment tax-wise. In other words, spending over these limits often has a tax bill associated with it!
Give yourself the gift of good advice!
We offer a one-hour session when you can ask our team any accounting questions you have on gifts. Contact us now and we’ll get you booked in!