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  • Writer's pictureXero Queen

Tax Treatment of Business Gifts

With Christmas almost upon us many companies like to give gifts to staff and customers alike, so is there any way of doing this and getting tax relief?



There is a general rule that no tax relief is given on the cost of giving business gifts, as by default, they are treated in the same way as entertaining. However, you’ll be pleased to hear that there are ways to get tax relief when buying some business gifts but as you’d expect with HMRC, there are strict rules that must be adhered to.

A Company or Sole Trader for that matter can give away an item in order to advertise to the public generally this could include a free sample or an item that incorporates an advertisement such as items branded with a company logo provided the following two rules are met.

  • The cost of the individual item is less than £50

  • The item is not part of a series of gifts to the same person which come to more than £50 in that accounting period.

There is a caveat to this, so it is really important to note that no tax relief is permitted for this type of item if the gift is food, drink, tobacco or an exchangeable voucher.

VAT treatment for gifts

  • Where a business makes gifts in excess of £50 or makes a series of gifts to one person exceeding £50 it should account for output VAT on the value of the gifts.

  • Output VAT does not need to be accounted for where a gift is a free sample of the business's product.


Employee gifts


The rules are slightly different for an employee a gift made by an employer to an employee is tax deductible in the employer's accounts. Another caveat here the gifts concerned must not also be provided for others. What is meant by this, the gift in question must not also be provided to customers, or otherwise used as promotions to potential future customers, meaning the gifts provided to the employees are incidental to that.

  • VAT is then reclaimable on the cost of an employee's gift.


Business gifts to charities


A business gift is allowable when made to:

  • A charity

  • The Historic Buildings and Monuments Commission for England

  • The Trustees of the National Heritage Memorial Fund.

Where a gift is made by a company out of their trading stock, there is no requirement to bring in a receipt for the value of the gifted item(s).


Cash donations to charity


A cash donation is not classed as a business gift, and so without special rules a gift of cash to a charity will not be tax deductible under the first principles of - not "wholly or exclusively" made for the purposes of the business.


An individual who is a UK taxpayer may make a Gift Aid declaration and then the recipient will obtain tax relief by way of a refund (providing that it has registered with HMRC for Gift Aid).


A company will obtain tax relief on a cash donation as a deduction from profits and there are similar conditions which apply as for Gift Aid.



Subscriptions


Subscriptions paid to trade bodies or associations are not generally speaking regarded as gifts; they are, therefore, tax deductible according to the business purpose test.


I hope you have found this blog helpful. There is further information available at www.GOV.UK.



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