Tax and VAT implications on gifts

Tax and VAT implications on gifts

It’s that time of year again when we all start to think about the dreaded “C” word and plan our festive season. For some businesses, it is a time where they like to take the opportunity to acknowledge, thank or reward some of their customers and/or employees by giving gifts. But what are the tax implications of this?

As a general rule, HMRC sees customer and staff Christmas gifts or any other gifts as entertaining which means that they are not tax deductible for business purposes. However, like everything there are exceptions and instances where the cost of the gift can be tax deductible.


Gifts to customers/clients

HMRC allows you to claim a business gift worth up to £50 to any one person in any one tax year. However, the gift must include an advertisement for your company such as a business logo or specific branding and must not be food, alcohol or tobacco or vouchers which can be exchanged for food, alcohol or tobacco. 

Beware, if the gift costs more than £50, HMRC will disallow the entire amount, not just the amount over the £50.


Gifts to staff and employees

The general rule is that gifts to staff are classed as taxable benefits. However, you can give staff or employees a gift with a maximum value of £50 (including VAT) per employee per tax year. The gift must not be in return for a salary sacrifice or in respect of work carried out and must not be cash or a voucher that can be exchanged for cash.  Though you can give a gift voucher which can be spent in a store.

This is again an all or nothing rule so if the gift exceeds £50, then the entire amount would be taxable as a benefit in kind and not just the amount that exceeds the £50.

The limit is however higher for directors or office holders of close companies (companies owned and controlled by five or fewer participators, as is the case in many family companies) or employees related to them. They can receive gifts that do not exceed a total value of £300 in any one tax year.

Don’t forget though that there is also an allowance per an employee for a Christmas or any other party of £150 per employee – check out our blog on Christmas parties.

VAT on gifts

When it comes to VAT, you can claim the input VAT on gifts acquired for business purposes, which includes gifts for staff and customers (although not alcohol), but not things you buy for yourself or your family and friends! 

I hope this helps with planning your gifts to your team and clients, but, as always, any questions, we’re happy to chat!  For more on what you can and can’t put through your business as an expense download a copy of our Expenses Guide.