Are business gifts tax deductible?
As a general rule, business gifts are not considered tax deductible, as by default HMRC consider these to be entertaining - see here,
However, it is possible to claim a tax deduction for business gifts in the circumstances set out below.
Allowable business gifts:
Advertising for your business
You can obtain a tax deduction for the following business gifts:
- An item given away to the general public in order to advertise your business (for example a free sample).
- An item that includes a conspicuous advertisement for your business - though this must cost less than £50 and not be part of a series of gifts to the same person which come to more than £50 in that accounting period.
Are there any gifts for advertsing your business which are not tax deductible?
Yes, no tax deduction is allowed if the gift is food, drink, tobacco or an exchangeable voucher.
What's the VAT treatment?
The VAT treatment is as follows:
- Where your business makes gifts of over £50, or a series of gifts to one person are over £50, it should account for output VAT on the value of those gifts.
- Your business does not need to account for VAT where the gift is a free sample of your business's product
Gifts to your employees
Your business can claim a tax deduction for a gift to your employees and also reclaim the VAT on the cost of the gifts. However no tax deduction is allowed if the same gifts were made to a third party and the gifts to your employees were merely incidental.
Gifts to charities
A gift made by your business to a charity is tax deductible and where this is made out of trading stock, there is no requirement to bring in a receipt for the value of the gift.
What about cash donations?
Strictly speaking a cash donation is not a business gift. Special rules apply for cash gifts to charities, though unless the gift has been made wholly or exclusively for the purposes of your business you are not likely to obtain a tax deduction for this expense.
If allowable your company will obtain tax relief on the cash donation as a deduction from its profits.
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