The concept of a “business gift” can sometimes be confusing. For example, you may not know what qualifies as a business gift or what business gifts are tax-deductible. But it pays to understand the basics to avoid any potentially costly mistakes. So IN Accountancy has compiled this brief guide to shed some light on the intricacies of business gift tax.
Contact In Accountancy to see how we can make your business gifts tax-deductible!
What is classed as a ‘business gift’?
HMRC defines a business gift as “something that is given to a person without receiving anything in exchange. It is offered voluntarily and without any expectation of a return.” Generally speaking, the tax man doesn’t consider business gifts tax-deductible. The vast majority fall under the category of “entertaining”. However, there are some notable exceptions that are worth knowing, particularly for small and medium-sized businesses.
So, are business gifts tax-deductible? Let’s find out.
Business gifts to staff
Tax relief is available for the cost of Businesses providing company gifts to employees if the total cost (including VAT) is less than £50 per employee. The VAT can also be reclaimed on the cost of the gift. This is provided that the gift is not cash or a cash voucher, isn’t linked to the employee’s performance, and isn’t provided as part of a salary sacrifice scheme. Any gifts over £50 are treated as a “benefit in kind” and are therefore taxable to the employer and employee.
Such gifts are referred to as ‘Trivial Benefits’ by HMRC, and you can find a link to a short video on this subject below:
What are Trivial Benefits? How can you give your employees a tax deductible gift?
It is important to note that company Directors are limited to a maximum of six such ‘gifts’ in each business or fiscal year.
Are staff parties and events tax deductible?
Annual office events like Christmas parties are also allowable for both corporation tax and vat relief. The so-called “annual event” allowance lets you spend up to £150 per head on a tax-free event or series of events. There are however a number of points to be aware of:
- The event must be annually recurring, and available to all employees generally.
- The £150 per head ‘exemption’ is inclusive of VAT, as well as any transport to and from the event, or accommodation for attendees.
- If the cost of the event is greater than the £150 exemption, then the whole amount and not just the excess may result in a benefit in kind to the employee.
- Staff functions which are outside of the scope of this exemption will still be allowable for both corporation tax and VAT relief, whereas functions involving clients are considered ‘entertaining’ and not tax deductible.
Business gifts to customers or clients
Business gifts allowable for tax purposes to customers or clients fall into two categories:
- Giveaways to the public (like a free sample) to advertise your business.
- Gifts less than £50 that advertise your business, not including food, drink or tobacco. Vouchers are allowable in this instance, so long as they are not exchangeable for cash. Multiple gifts to the same person amounting to more than £50 are subject to tax.
Promotional gifts can include small items such as branded USB sticks, water bottles, diaries, mugs or calendars. Larger or non-promotional business gifts given to customers or clients are not tax-deductible as expenses. HMRC advises companies to keep accurate records of all business gifts to customers or clients. This is just in case they need to question the authenticity or value of the gift at a later date. So it pays to keep your paperwork up to date.
Charitable Donations
For limited companies, charitable donations are generally tax-deductible so long as they are made to UK Registered National Charities. They cannot, however, claim any allowances for Gift Aid, or tick the box to add Gift Aid to their donation if this is made on behalf of the company.
If you are operating as a sole trader, then charitable donations will be disallowed for business purposes, but you will instead be able to offset these against your personal tax liability on your annual self assessment tax return.
Business gift tax advice from IN Accountancy
So, can business gifts be tax-deductible? In certain circumstances, yes. Some company gifts are tax-deductible, but the rules around permissible limited company tax free gifts are complex and can be difficult to navigate.
Business owners and their finance teams need to understand the tax rules surrounding business gifts to ensure they comply with HMRC regulations. Companies are also advised to keep accurate records of all business gifts to avoid any unwelcome questions from HMRC further down the line. The best way to stay on the right side of the rules is to seek the help of an accountant.
If you are a business owner or finance team and require further guidance on business gift taxes, please don’t hesitate to contact IN Accountancy for assistance. Our team is highly experienced in all tax matters and is here to provide you with the advice and support you need. So get in touch with our award-winning Stockport accountancy firm to discuss your business gift tax requirements and gain peace of mind that you’re gifting tax-efficiently.
For more information about business gifts, please get in touch with the IN Accountancy team for advice. Contact us today on 0161 456 9666 or email [email protected]. Our experienced, friendly and knowledgeable team is here to provide your small and medium-sized business with all the support and guidance you need to navigate the complex rules regarding business gifts and tax in general.
