Tax rules for gifts to customers and contacts
As Christmas approaches you may have considered thanking your customers and contacts for their custom and support throughout the year by giving them a business gift which can be really good way of strengthening business relationships.
The general rule is that customer gifts are not tax-deductible expenses. HMRC view this as entertainment costs. There are a few limited circumstances where tax relief on a business gift is available.
Gifts advertising your business
Where a gift costs less than £50, and on which there is a conspicuous advertisement of your brand, then it should be tax deductible.
However, it is not quite that straight forward as there are other conditions to be met. The gift cannot be of food, drink, tobacco or a voucher exchangeable for goods. The advertisement must be on the gift itself, not just on the packaging.
The cost of gifts to the same customer cannot exceed £50 per financial year.
Some examples of branded gifts are diaries, umbrella, laptop cases, etc. Not only could these goods be allowable for tax purposes, but they can also be helpful in promoting your business.
Gifts of your stock or services
The cost to a business of giving away its own goods or services for the purpose of advertising them to the public is not business entertainment expenditure, meaning it is tax deductible.
It will qualify if the gift is
(a)is of a kind which it is the trader's trade/company's business to provide, and
(b)is provided in the ordinary course of the trade either for payment or free of charge in order to advertise to the public generally.
VAT treatment
UK law says that, when goods on which input tax has been reclaimed are given away, VAT normally becomes due. However, this does not apply to ‘gifts of small value’ and ‘samples’.
· a limit of £50 - valued at cost - is applied to ‘small gifts’. This applies to either a single gift or a cumulative series of gifts, to the same person in a 12 month period
· only one sample of each product supplied to another person can be disregarded
If you have any questions, please do not hesitate to get in touch.