- Last Updated: 13 December 2021
This is a freeview 'At a glance' Practical Tax Guide to the tax treatment of business gifts for business owners.
What are business gifts? Are business gifts allowable for tax? What needs to be disallowed?
For the tax treatment of gifts made to employees click here.
At a glance
This guide applies to a 'person' as in a sole trader, a partnership or a company.
Business gifts: At a glance
The general rule is that there is no tax relief given on the cost of making business gifts, as by default they are treated as Entertaining. There are a number of exceptions to this.
Advertising
A person can give away:
- An item provided in their business in order to advertise to the public generally e.g. a free sample.
- An item incorporating a conspicuous advertisement provided that it costs less than £50 and is not part of a series of gifts to the same person that comes to more than £50 in that accounting period. No relief is permitted for this type of item if the gift is food, drink, tobacco or an exchangeable voucher.
VAT:
- 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. If less than this, it is an outside scope supply.
- Output VAT does not need to be accounted for where a gift is a free sample of the business's product.
- In some cases, what is advertised as a free gift, will, for VAT purposes, still be a supply in return for consideration and VAT will be payable.
- In Marks and Spencer plc v HMRC [2018] TC06471, the free bottle of wine in the 'dine in for £10' offer was not actually free. It could only be obtained by paying £10 and taking the required food options. This meant there was consideration for the wine and some of the £10 had to be allocated to standard rated wine. It could not all be zero-rated food.
- See Discounts, Reward Schemes & Vouchers: VAT.
Employee gifts
A gift made by an employer to an employee is deductible in the employer's accounts, unless gifts are also provided for others and the gifts provided to the employees are incidental to those.
- VAT is reclaimable on the cost of a gift to an employee.
Business gifts to charities etc
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.
- The National Endowment for Science, Technology and the Arts.
- A designated educational establishment (s.110 ITTOIA 2005 defines this).
Where a gift is made out of trading stock, there is no requirement to bring in a receipt for the value of the gift.
Cash donations to charity
A cash donation is not a business gift and so without special rules a gift of cash to a charity will not be tax-deductible under first principles if it was 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.
Subscriptions
Subscriptions paid to trade associations etc are not generally regarded as gifts. They are tax-deductible according to the business purpose test.
Are you enjoying our content?
Thousands of accountants and advisers and their clients use www.rossmartin.co.uk as their primary TAX resource.
Register with us now to receive our unique FREE Tax Planning Tips and Advice Guide & our FREE OMB Newsletter.
Enjoying the Practical Tax content on www.rossmartin.co.uk?
Sign up now to receive a unique FREE Tax Planning Tips and Advice Guide & our FREE Newsletter.