Christmas is the season of giving and many businesses see it as a chance to promote their brand and reward their loyal customers with fine foods and wines and...branded merchandise.

Behind today's door in the calendar are Gifts to customers: when can you obtain tax relief on a Christmas gift to a customer and what is the accounting treatment?

This is day 6 of our Tax & Accounting at Christmas Advent calendar, as we analyse the tax and accounting treatments of Christmas and open a door in our Christmas Advent calendar to count down each working day until the Christmas holidays in the UK.

Accounting 

Gifts to your customers chiefly come under two headings in your accounts:

  • Entertaining 
  • Advertising and marketing

Gifts may take many forms:

  • Free samples of your product.
  • A gift that is not necessarily related to your sales but carries advertising/merchandising for your company. e.g.  free pen, mug or mousemat.
  • Seasonal styled gifts of food or drink (e.g. your own branded wine or plum pudding).
  • Non-branded gifts such as champagne or chocolates.

Tax on customer gifts

  • Customer gifts with entertaining as the main purpose are never tax-deductible and VAT is recoverable in limited cases. By default, gifts are treated as Entertaining, though see below.
  • Free samples of your products are generally accepted as advertising and promotion and the costs are tax deductible and VAT is recoverable.
  • Customer gifts costing less than £50 per person:
    • VAT is recoverable subject to aggregate limits over a rolling 12 month period.
    • Tax deductible as advertising if it carries your advert and is not food, drink, tobacco or exchangeable vouchers. This is subject to an aggregate limit over a single accounting period.
  • Customer gifts costing more than £50 per person:
    • VAT is either irrecoverable, or if recovered, an output VAT charge must be accounted for.
    • Is unlikely to be accepted as tax deductible.

For more detail on Gifts and giving see our Subscriber guide on Gifts to Customers.

 

Back to our Christmas Advent Calendar