Gifts for customers and suppliers
27 November 2021, Advocates, Artists, Barristers, Charities, Companies, Creative Industries, Employer, General, Musicians, Sole Traders
What is a gift?
This might seem to be an obvious question, but it helps to get the definition clear to work out the tax implication of gifts for customers and suppliers.
A gift is something you give without receiving anything in exchange. For example, you may choose to give a customer a bottle of wine at Christmas. As you are not obliged to give the wine, and as the customer is not required to give you anything in return, this is a gift.
How do gifts for customers and suppliers affect tax?
The starting position is that no tax relief may be claimed for gifts. This means that you cannot deduct the cost of the gift when you calculate the taxable income for your business. This is the same whether your business is a limited company or a sole trader.
Can you reclaim VAT on gifts?
Gifts have the same VAT treatment as business entertainment. The VAT borne on presents for your favourite customers is generally not to be deducted as input tax.
Surely even HMRC can get on board with Christmas?
There are circumstances in which your company may claim tax relief for the cost of gifts that it makes. These are as follows:
- Where the recipient is an employee of the business (unless you give gifts to others and the gifts to employees are incidental to the gifts to others). Note: for more expensive gifts this may give rise to a tax liability for the employee.
- Where you give away samples of items that you sell in the business.
- Where the gift meets all three of the following conditions:
- it has an advertisement for the business on it;
- it isn’t food, drink, tobacco or a voucher exchangeable for goods; and
- the total cost of items given to the person in the period is £50 or less.
So what should I do?
If you are a sole trader (freelancer) there is no benefit in putting gifts through the business if they don’t qualify for the exemptions above. In this case you’re going to have to put your hand in your own pocket.
If you trade as a company, the business may be able to pay for the gifts, but there will be no deduction for the purposes of Corporation Tax and no VAT reclaim. If you are going to send gifts to customers or suppliers make sure you keep separate records of these expenses so they can be excluded from your tax return.
How do I keep records?
Alterledger can make sure all your bookkeeping records comply with HMRC requirements using Xero software. Get in touch using the contact form below to find out how Alterledger can help you.
